Shares of titanium dioxide manufacturer Tronox Ltd (NYSE:TROX) jumped higher today after the company announced fourth-quarter and full-year 2017 results and, perhaps more important for the share price at the moment, an extension for its proposed acquisition of fellow titanium dioxide producer Cristal.
Tronox and Cristal have been held up by regulatory hurdles in attempts to finalize the acquisition after U.S. officials became worried that it would consolidate too much global market power. Because of the delays, both parties agreed to extend the end date for a transaction to June 30 of this year. The end date will automatically renew and extend every three months until March 31, 2019, which buys the companies plenty of time to sort out regulatory uncertainty.
Even better, Tronox won't have to pay a termination fee unless the deal expires in March 2019, at which point it would need to pony up $60 million. Wall Street interprets that as a strong indicator the companies think the deal will eventually go through.
As of 11:56 a.m. EST, the stock had settled to a 10.5% gain.
Tronox stock has been on fire since the beginning of 2016 thanks to a rejuvenated titanium dioxide market. Selling prices have increased from multiyear lows and the market is finally more balanced between supply and demand. The stock has risen from under $4 per share to over $25 on the strong market fundamentals.
However, unlike peers, Tronox has been dealing with uncertainty related to its attempted acquisition of Saudi-based Cristal. Developments in that ordeal have come out of nowhere to punish the stock price over the last year.
The new agreement to extend the period for which the acquisition can be finalized hints that investors can finally focus on the actual business. That's important, because it seems to be headed in the right direction: Full-year 2017 revenue jumped 30% higher compared to the previous year, while the titanium dioxide segment alone posted operating income of $261 million, adjusted EBITDA of $500 million, and free cash flow of $345 million.
The momentum is expected to continue throughout 2018, which will provide much-needed help cleaning up an awful balance sheet. The company's interest expense alone -- roughly $1.57 per share -- nearly single-handedly put it into the red in each of the last two years.
Starting off the year with an extension to finalize its acquisition agreement with Cristal helps to provide a cushion against the regulatory uncertainty that has ravaged the stock. But although Tronox turned in a solid 2017 thanks to a strong titanium dioxide business and market, there's a long way to go before the company can deleverage its balance sheet.