Innospec pulls out of race for TPC Group

Mon Dec 3, 2012 10:22am EST

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(Reuters) - Innospec Inc (IOSP.O) withdrew its offer of about $745 million for chemical manufacturer TPC Group Inc TPCG.O, potentially paving the way for the success of a rival bid from First Reserve Corp and SK Capital Partners for the butadiene maker.

TPC shares fell 7 percent to $44.70 in early morning trade on Monday, while Innospec shares were up about 2 percent.

First Reserve Corp and SK Capital Partners are offering $45 per share for TPC, lower than Innospec's $47.50, but TPC has recommended that its shareholders vote in favor of a deal with the two private equity firms.

The two firms and TPC have repeatedly called the $45-per-share offer superior, saying, among other things, that it was unlikely that Innospec would close a deal this year.

However, at least two TPC shareholders -- Eagle Asset Management and Sandell Asset Management, which together hold about 10 percent of the company -- have shot down the offer from the two private equity firms as inadequate.

Both Innospec, whose bid is backed by Blackstone Group LP (BX.N), and First Reserve and SK Capital had raised their offers.

Innospec was expected to submit a definitive proposal for TPC by December 5, when TPC shareholders are to vote on a deal with First Reserve and SK Capital.

"We are unable to conclude a deal structure in a manner where we are totally satisfied with the value creation for our shareholders," Innospec Chief Executive Patrick Williams said in a statement.

What makes TPC attractive is butadiene, analysts say. They predict a long-term shortage of butadiene -- a by-product of ethylene production -- as ethylene producers shift to cheaper ethane, which yields lesser butadiene, from naphtha.

Butadiene is used to make synthetic rubber for tires and other automotive products.

(Reporting by Swetha Gopinath in Bangalore; Editing by Don Sebastian and Sriraj Kalluvila)

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