A Canexus terminal that will transfer oil piped in to train cars near Bruderheim, Alberta, is shown in a file photo.IAN JACKSON/The New York Times
Canexus Corp. is picking up the pieces following its failed deal with Superior Plus Corp., with the Calgary chemical company saying it will now focus on further reducing its debt and making its way as a "standalone" business.
"Certainly, there is a path forward without a transaction," Canexus chief executive officer Doug Wonnacott said.
Over the past several weeks, he said, it became apparent there was an increased likelihood that the U.S. Federal Trade Commission's concerns about concentration in the North America market for sodium chlorate – used to whiten wood pulp for making paper – would be an impediment to Superior's planned friendly takeover of Canexus.
The $324-million deal, hatched last October, was supposed to close at the end of June and would have seen two of Canada's largest industrial chemical companies blend their operations under the Superior name. Mr. Wonnacott said he had become concerned that it might take several more months to close the deal and that the cost of lawyers and economists needed to take on the U.S. antitrust regulator could be prohibitive.
"With the ongoing discussions with the FTC, we were of the belief that the probability of success was becoming smaller and smaller," Mr. Wonnacott said in an interview on Tuesday. "As we embarked on this process, we always recognized that 'go alone' was one potential scenario or outcome."
The FTC filed a complaint to block the deal last week. With that obstacle thrown in their path, the two companies could not agree on how to keep the deal alive past the June 29 closing date.
Given the FTC's opposition to the deal, Mr. Wonnacott said he expected the legal fight would be long and expensive. "We were looking for some assurances from Superior with respect to helping us deal with some of those."
For its part, Toronto-based Superior said last week it wanted "Canexus to remedy the breach of certain provisions of the agreement," without providing further details. However, Canexus said it "vigorously disagrees with any contention in relation to a breach of the arrangement agreement." It contends it is entitled to a $25-million deal-termination fee and is demanding payment from Superior.
Canexus will pursue legal action, if need be, according to Canexus executives on a conference call Tuesday.
Superior didn't respond to requests for comment on the specifics of the termination fee.
Canexus, with operations that focus on producing chemicals for the pulp and paper industry and water treatment facilities – but also the oil and gas industry – plans to use that $25-million break fee for further debt reduction. Its net debt stood at $578-million at the end of 2015, according to the company's annual report.
"The important thing is we've got a very stable business here. It's generating significant cash flow," Mr. Wonnacott said.
Since attention was focused on the deal with Superior, Mr. Wonnacott said no asset sales are on the immediate horizon. However, an uptick in oil and gas activity could help Canexus pay off debt more quickly than planned. Chief financial officer Dean Beacon said that the company's board of directors "is committed to reviewing the dividend on a quarterly basis to further enhance the company's financial strength and flexibility."
On Tuesday, Superior announced that it has entered into an agreement to sell its construction products distribution (CPD) business to Foundation Building Materials LLC for $325-million (U.S.), with the deal expected to close some time in the second half of this year. Superior said the cash will allow it to reduce debt, increase its financial flexibility and see capital redeployed to its other businesses, including the distribution of propane and distillates, and chemical manufacturing and sales.
"The divestiture of CPD simplifies Superior's business model by exiting its most cyclical business," Superior said in a statement.
Kelly Cryderman