Huntsman Corp. agreed to buy Rockwood Holdings Inc.’s titanium-dioxide assets for $1.1 billion to create the world’s second-largest producer of the white pigment and said it plans to sell shares in the business.

Huntsman also will take on $225 million in pension obligations, the Salt Lake City-based company said today in a statement. There will be an initial public offering of the combined titanium-dioxide unit within two years of the deal’s closing, which is expected in the first half of 2014, subject to regulatory approvals.

“This acquisition provides a unique opportunity to unlock value within our pigments business,” Chief Executive Officer Peter Huntsman said in the statement. The IPO “will allow greater investor focus and appreciation for our differentiated businesses.”

The acquisition will give Huntsman control of about 15 percent of the market for titanium dioxide, also known by its chemical formula TiO2 and used as a whitener in paint and toothpaste. Shedding TiO2 will allow Rockwood to focus on its higher-value lithium business.

The deal marks what may be an initial stage in a shake-up of the TiO2 industry. DuPont Co., the largest producer, said in July it was considering options for its titanium unit. Tronox Ltd., another U.S. competitor, said in February it was interested in acquiring TiO2 assets.

 

Global Oversupply

 

TiO2 sales at Huntsman were $1.44 billion last year and $889 million at Princeton, New Jersey-based Rockwood. A global oversupply has caused prices to fall since mid-2012, eroding profitability.

“We anticipate TiO2 demand will continue to recover in the coming quarters,” Peter Huntsman said in the statement.

Huntsman rose 4.2 percent to $19.94 at 10:12 a.m. in New York. Rockwood increased 0.1 percent to $66.67.

The takeover will add 60 cents to Huntsman’s per-share earnings, based on a projected $130 million in cost savings. Huntsman said the cash price it’s paying is 5.5 times estimated 2014 earnings before interest, taxes, depreciation and amortization, excluding one-time items.

In addition to Rockwood’s TiO2 business, Huntsman will acquire production capacity for synthetic iron-oxide, timber- treatment products and specialty automotive materials.

DuPont, which is based in Wilmington, Delaware, has about 20 percent of global TiO2 capacity, Saudi Arabia’s Cristal has 15 percent, and Huntsman and Dallas-based Kronos Worldwide Inc. have 10 percent apiece, according to a June presentation from Huntsman.

Huntsman said it has commitments to help it finance the takeover. The company’s financial adviser on the deal is Bank of America Corp. and its legal adviser is Vinson & Elkins LLP. Rockwood said in a separate statement its financial adviser is Lazard Ltd. and its legal advisers are Hughes Hubbard & Reed LLP and Willkie Farr & Gallagher LLP.

 

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