It's like déjà vu all over again. My column from exactly one year ago today focused on holding company Valhi (VHI) , which had taken a 28% hit the day before. This was a sympathy move that hit all names in the titanium dioxide (TiO2) industry following the announcement that the Federal Trade Commission (FTC) was blocking Tronox Ltd.'s (TROX) acquisition of the titanium dioxide business of Saudi Arabia's Cristal.
This past Tuesday, after the market closed, Tronox announced efforts to salvage the Cristal deal, agreeing to sell off Cristal's Ashtabula, Ohio, plant in an effort to address FTC concerns ahead of a Dec. 19 deadline for regulatory approval. On Thursday (markets were closed Wednesday), Tronox dropped 23% to a two-and-a-half-year low.
Thursday's action sent Valhi down 3%, but Kronos Worldwide Inc. (KRO) was off 6%. By way of a refresher on this complicated situation, Valhi owns 83 % of NL Industries (NL) , which in turn owns 40% of Kronos. NL also owns about 4% of Valhi. When TIO2 takes a hit, typically, so does this tangled web.
To understand why Valhi held up fairly well on Thursday as opposed to the beating it took on Dec. 6 last year, consider that its shares have fallen 65% over the past year. After last year's sympathy hiccup in December, Valhi actually rose 69%, topping out at around $8.80 in late April. It has been downhill ever since, so for whatever reason, the damage already had been done, and Thursday did not mean much.
I had a position in Valhi this time last year; I'd followed the name for years, but finally took the plunge in September 2017, when shares were in the mid $2s. I closed that position the following January in the low $6 range, and wound up leaving some money on the table as it headed toward $9. But truthfully, the quick run-up was more luck than skill. I thought I was buying a cheap name that might play out over time, but not in four months. Value investors are not accustomed to instant gratification.
Last February, I longed for the days of a cheaper VHI (among other names), and finally got my wish and started acquiring a new position in September in the $3 range. With Valhi now at $1.85, those trades are well under water. Interestingly, Valhi's current two-cent quarterly dividend now equates to a 4.3% yield.
I also could not resist establishing a position in NL over the summer, one that is even deeper in the red than VHI. This experience, by the way, is more the norm in terms of buying distressed deep-value plays; they often tank before heading higher (if that even happens), and your choice is whether to continue building a position (some call it throwing good money after bad). But in these cases, I am typically not all in at once, and will build a position over time.
Meanwhile, it won't be long before we find out whether the FTC will approve the Tronox deal, but Tuesday's move by the company seems more like a Hail Mary pass with nine seconds to go in the fourth quarter.
