2/7/2014

Tokai Carbon to purchase carbon black maker Cancarb

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By Jennifer Karpus-Romain Follow Author

CALGARY, Alberta—TransCanada Corp. has agreed to sell thermal carbon black maker Cancarb Ltd. and its related power generation facility to Tokai Carbon Co. Ltd. for $190 million.

The transaction is expected to close late in this year's first quarter, subject to various approvals.

A spokesman for TransCanada said the company was interested in "pursuing a possible sale of Cancarb at this time for a couple of different reasons," but the main one was that Cancarb is a valuable asset and a profitable business that just did not fit in the company's growth plan.

He said the divestiture of Cancarb and its waste heat recovery power plant, located in Medicine Hat, Alberta, allows it to capitalize on current market conditions and better align its asset base with the company's strategic direction, focused on large-scale pipeline and power generation projects in Canada, the U.S. and Mexico.

"This is one of those situations where that reasoning actually makes sense," said Paul Ita, an analyst with Amherst, Mass.-based Notch Consulting Group.

"TransCanada is a pipeline and energy business, and Cancarb was a small part of their overall business," he said. "Cancarb does generate co-gen power as part of its production process, but mainly it is in the business of selling thermal black, which is not part of TransCanada's primary business."

In the black

Cancarb, acquired by TransCanada in 1981, is a producer of thermal carbon black, a specialized form of carbon black derived from super-heated natural gas used in a wide range of industrial and automotive products, including high-grade rubber, insulation and ceramics.

"It's quite a profitable business due to its own operations as well as, at the current time, the very low natural gas prices," the spokesman said.

The adjoining 41-megawatt power plant that was added in 2001 captures large volumes of waste heat from the manufacturing process to produce electricity that is sold into Medicine Hat's electrical grid, helping to reduce greenhouse gas emissions.

"So from TransCanada's point of view, it was a good time to go out and look at possible opportunities for divesting," according to the spokesman. "We felt it was a viable asset that doesn't fit specifically with our current strategy and growth plans for the future."

He added that several potential buyers expressed interest in Cancarb, although he did not get into specifics.

Tokyo-based Tokai is an international supplier of furnace carbon black and other carbon ceramic-related products.

The TransCanada spokes---man said Tokai is "very focused" and has "a lot of history and experience in that industry." He added that Tokai is a major player globally in terms of carbon product.

"They are one of the leaders in a related form of carbon black called furnace carbon black," he said. "This is actually their first foray into thermal carbon black area, so it's a slightly different form of carbon black, but that's certainly an area that they've identified their expansion and growth. Cancarb could potentially be a good entrance into the thermal carbon black market for them."

Win-win situation

"For Cancarb, I think the acquisition by Tokai Carbon will be beneficial for both," Ita stated. "Tokai is in the carbon black business, so there is a good match there. Tokai is very well respected and growing globally—they are now ranked as the seventh largest carbon black producer worldwide and added capacity in Thailand in 2012 and China in 2013."

Cancarb employs 73 at its Medicine Hat facility. The spokesman said Tokai has made competitive offers to all employees and is committed to working with the current management staff.

"Tokai has certainly recognized that the employees of Cancarb are a very important part," he said. "A lot of them are long-term employees that have very specialized knowledge about running the facility."

TransCanada previously attempted to sell Cancarb in 2000 to Sid Richardson Carbon Co.; however, Sid Richardson bowed out of the talks in 2001, citing changing economic conditions.

"That previous acquisition was called off due to a spike in natural gas prices," Ita said, noting that Cancarb uses natural gas as its feedstock for thermal black production. The worsening economy in late 2000 also was a factor.

Toward the end of 2001, TransCanada pulled Cancarb from the market because it had sold other assets and no longer needed to address its balance sheet, the firm said at the time.

With more than 60 years in business, TransCanada operates a network of natural gas pipelines that extends more than 42,500 miles, tapping into virtually all major gas supply basins in North America.