TROX: Cristal Deal Sours Following the FTC Expiration Date

Summary:

FTC announces its intention to enjoin the deal and block the merger. Two business days following the supposed waiting period expiration date, the FTC has formally announced a challenge to the merger between Tronox and Cristal. The main complaint from the FTC is that the North American TiO2 pigment market is primarily a chloride market, and that consolidation of Cristal and Tronox would allow the newly merged firm and its primary competitor to control the majority of said market. From here, Tronox has indicated that it is firm in its belief that TiO2 is a global commodity, and thus intends to take the case in front of the judge. We are uncertain as to how the miscommunication occurred between the FTC and Tronox regarding the exact expiration date, but the fact that it did will likely weigh on investor confidence. From a valuation standpoint, we now shift to a probability weighted metric which accounts for the likelihood of asset divestitures. We are thus reducing our price target by $5 per share, to $27, and remain Buy rated.