Superior Plus running out of time on Canexus play
Chemical manufacturing firms believed to be split over $25M fee
Last-minute negotiations are underway to extend the closing date for Superior Plus Corp.’s acquisition of Canexus Corp. after U.S. antitrust authorities launched a legal challenge that could quash the deal.
Calgary-based Canexus announced Tuesday that it is still in talks to extend the closing date of the deal, which is set to expire today, but analysts believe the two chemical manufacturing companies are divided over a $25-million fee.
“After speaking with management, we understand that there is a disagreement between Superior Plus and Canexus on whether a $25- million reverse termination fee is payable if the pending transaction is terminated after the outside date (Wednesday),” RBC Dominion Securities analyst Nelson Ng said in a research note. An extension to the closing date is needed, however, to give Superior Plus time to respond to a legal challenge in the U.S.
The U.S. Federal Trade Commission filed an administrative complaint about Superior Plus’ proposed acquisition on Monday on the grounds that it would violate antitrust laws.
That complaint was filed the same day Canada’s Competition Bureau sent a “no action” letter to Superior Plus indicating that there were no issues with the deal.
Sources familiar with these types of transactions said it is unusual for the Competition Bureau and the FTC to issue contradictory statements on a merger after the two agencies had said they were working together to review the deal.
The timing of the FTC’s administrative complaint also puts pressure on Toronto-based Superior Plus to extend the closing date of the Canexus takeover into 2017.
The all-share transaction was originally announced in October 2015 and is worth $982 million.
Superior Plus has been negotiating with the FTC for months in an attempt to win approvals for the deal, which would give it significant market share in the U.S. sodium chlorate market.
Sodium chlorate is used to bleach wood products before they are turned into paper, tissue or diaper liners and the FTC is concerned prices for those products could rise if the deal closes.
“By combining more than half of all North American sodium chlorate production capacity in the merged Superior and Canexus, the acquisition is likely to lead to anticompetitive reductions in output and higher prices,” the FTC said in a release.
To address the FTC’s concerns, Superior Plus has offered to divest some of its sodium chlorate plants in the U.S. in a move that would leave the company with 35 per cent of the market after the Canexus deal.
The FTC has so far rejected those offers and since the two sides have not been able to reach an agreement, the issue is heading to a trial in November, assuming the deal deadline is extended.
“I think the challenge is that the FTC has a chlorate capacity market share number that it doesn’t want to go above,” BMO Capital Markets analyst Joel Jackson said.
“It seems like Superior Plus doesn’t want to go that far because maybe then the merits of the deal are not strong and the accretion is not attractive,” he said.
The acquisition is likely to lead to anticompetitive reductions in output and higher prices.