U.S. Files Antitrust Challenge to Block Pigment-Maker Deal

(Bloomberg) -- The U.S. Federal Trade Commission challenged a proposed deal between two companies that supply a white pigment used in paints and plastics, saying that a tie-up would harm competition.

The agency filed an administrative complaint Tuesday seeking to block Tronox Ltd. from completing a $1.6 billion purchase of the titanium-dioxide business of closely held Cristal, saying that the acquisition would give Tronox too much market power. The FTC said in a statement that it also gave staff the go-ahead to make filings in federal court to keep the companies from closing the deal, pending an administrative trial.

Tronox said the complaint was based on an incorrect analysis of the deal and the titanium-dioxide market and that it would fight the government's action.

The acquisition "will enhance competition in the TiO2 industry and benefit our customers around the world," Tronox Chief Executive Officer Jeffry Quinn said in a statement, referring to titanium dioxide by its chemical formula. The shares fell 9.9 percent to $23 after the close of regular trading in New York.

On Monday, the company said the antitrust review period had expired with no action and it believed it was free "to proceed toward completion of the transaction," according to a statement by Quinn.

The deal to buy the titanium-dioxide business of closely held Cristal would allow Tronox to leapfrog Chemours Co. as the world's biggest producer of the white pigment.

Triple Production

The acquisition would enable Tronox to double per-share earnings and triple its production of the substance, the company has said. The deal would combine some of the largest U.S. TiO2 plants that use the chloride process.

The FTC said that without a remedy, which would involve the sale of assets to a third party, the deal would allow the combined firm and its rival Chemours "to control the vast majority of chloride titanium dioxide sales in the North American market" and more than 80 percent of the manufacturing capacity of the product.

Adding Cristal's eight factories would give Tronox a total of 11 plants producing 1.3 million metric tons of pigment a year, or about 15 percent of the global market, the company said when the deal was announced in February.

Third Largest

Tronox's plant in Hamilton, Mississippi, is the third largest chloride-process TiO2 factory in the world and can produce as much as 225,000 metric tons of the white pigment annually, according to the company's website.

Cristal's plant in Ashtabula, Ohio, features two chloride-process plants and is the company's largest TiO2 facility, accounting for 30 percent of total production, according to the company's website.

Tronox's most likely remedy would be to divest about half of the Ashtabula plant's capacity, JPMorgan analyst Jeffrey Zekauskas said in a note to investors. Without Cristal, Tronox would be valued at $16 a share he wrote.

Cristal is owned 79 percent by Saudi Arabia's National Industrialization Co., known as Tasnee; 20 percent by Kuwait-based Gulf Investment Corp.; and 1 percent by Tasnee vice chairman Talal Al-Shair.

If the deal is allowed to go forward unchanged, Tronox would gain six mines from the Cristal transaction and would be 85 percent integrated into titanium raw materials.

--With assistance from David McLaughlin and Joshua Fineman

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net.

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Susan Warren at susanwarren@bloomberg.net.

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