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Shares of Rockwood Holdings, Inc. (ROC - Snapshot Report) gained roughly 2% following its announcement of the divestiture of its Titanium Dioxide (TiO2) Pigments and four other non-strategic businesses to Huntsman Corporation (HUN - Snapshot Report).

A Prudent Move

The move appears prudent as lower earnings from the TiO2 Pigments division were one of the reasons for lower profit in the second quarter of 2013. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the division slumped 117.3% year on year, hurt by weak selling prices.

From the historical point of view, the TiO2 Pigments division’s adjusted EBITDA has shown declining trends over the last four quarters and net sales from the business declined in two of last four quarters.

The TiO2 Pigments business was Rockwood’s biggest business unit in 2012 with sales of roughly $900 million, representing about 25% of its total sales of nearly $3,700 million.

The divestiture is in line with Rockwood’s goal to become a more focused specialty chemical company. It is now uniquely positioned to implement its long-term business strategy that will enhance shareholders’ value.

Huntsman is a major producer of TIO2, PU and other specialty materials and the acquisition it will make it the world's second-largest TIO2 producer.

The Deal

Rockwood is selling its TiO2 Pigments, Color Pigments & Services, Timber Treatment Chemicals, Rubber/Thermoplastics Compounding, and Water Chemistry businesses to Huntsman. Combined net sales generated from these businesses were $1,450.8 million for twelve months ended Dec 31, 2012.

Huntsman will pay $1.1 billion in cash,  and will also assume $225 million in pension obligations, subject to other customary adjustments, for the acquisition, leading to an enterprise value of $1.325 billion. The deal is subject to necessary regulatory approvals and is expected to complete by the first half of 2014.

For the transaction, Lazard Ltd. (LAZ - Analyst Report) acted as Rockwood’s financial advisor and Hughes Hubbard & Reed LLP and Willkie Farr & Gallagher LLP as legal advisors. BofA Merrill Lynch, the investment banking and wealth management division of Bank of America Corporation (BAC - Analyst Report), and Vinson & Elkins served as financial advisor and legal advisor, respectively, to Huntsman on this transaction.

Mission Accomplished

With the divestiture, Rockwood has successfully accomplished all four of its key objectives set for 2013. The company has fulfilled its objective to repurchase $400 million of common shares in 2013 by acquiring 6.23 million shares at an average price of $64.17 per share, closing the program on Sep 5.

To fulfill its second objective of meeting a target dividend yield of 2.8% to 3.2%, Rockwood increased its quarterly dividend by around 30% to 45 cents per share from 35 cents per share in 2012. Rockwood also repaid a debt of more than $1.43 billion in principal loans related to secured term debt to meet its third objective to repay debt of up to $600 million.

As a part of Rockwood’s fourth objective to launch strategic process for its non-core businesses, it sold seven of its non-strategic businesses for an enterprise value aggregating nearly $3.9 billion. The sale of TiO2 Pigments and Other Non-Strategic Businesses was the last one to conclude this initiative. The other non-core businesses sold include Advanced Ceramics for €1.49 billion (roughly $2 billion) and Clay Based Additives for $635 million.

Rockwood currently holds a Zacks Rank #5 (Strong Sell).
 

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