CALGARY – Superior Plus Corp.’s $982-million deal for Canexus Corp. has fallen apart after last-minute negotiations failed to provide enough time to fight off a legal challenge in the States.
Superior Plus and Canexus announced Thursday morning that they could not reach an agreement to extend the deal, which expired Wednesday at midnight. An extension was necessary because the U.S. Federal Trade Commission filed a legal challenge to block the combination of the two chemical manufacturers and a trial was scheduled for November.
“Canexus was prepared to give Superior additional time to pursue legal action, provided that it was on terms that were not disadvantageous to our shareholders,” Canexus board member Arthur Korpach said in a release, adding that the legal challenge increased the risk of the deal closing.
“If Superior had been willing to provide enhanced financial security and operational flexibility to Canexus in the event that legal proceedings were unsuccessful, we would have persevered,” Korpach said.
He did not specify what Canexus wanted in the form of “enhanced financial security” but analysts believe the disagreement originated from a $25-million break fee – payable to Canexus – should the deal fail.
Toronto-based Superior Plus did not respond to a request for comment but announced that the two companies hadn’t reached an agreement on remedies for breach provisions in the current deal or on an extension.
RBC Dominion Securities analyst Nelson Ng said in a research note the deal’s termination would have a neutral effect on Superior Plus but a negative effect on Canexus.
For Superior Plus, Ng said the FTC was demanding the company divest too much of its sodium chlorate business in the U.S. and those demands were cutting into the upside of the deal.
Sodium chlorate is used to bleach wood products before they are manufactured into diaper liners or tissue paper, and the deal would have given Superior Plus significant market share in the U.S.
To waylay the FTC’s concerns, Superior Plus offered to divest just enough of its sodium chlorate business to leave the company with 35 per cent of the market – but the FTC wanted more concessions.
Ng said that “many investors felt that the benefits of the proposed merger may be limited if Superior Plus needed to divest more assets than it previously proposed in order to obtain regulatory approval.”
Superior Plus shares rallied on the news of the deal’s termination, gaining close to 4 per cent and reaching $10.67 per share by midday Thursday.
After a brief drop, Canexus shares ended the day flat on the Toronto Stock Exchange though analysts worry that it will need to renegotiate agreements with its lenders if it intends to exist as a standalone company. Ng said he expects Canexus to “explore asset sales or a merger with another party.”
Calgary-based Canexus declined an interview request Thursday but said the company would describe its new corporate strategy next week.
“While we are disappointed by today’s outcome, Canexus has a strong business and a clear plan to create shareholder value,” president and CEO Doug Wannacot said in a release.