26. Acquisition of the Mineral Sands Business
On September 25, 2011, Tronox Incorporated entered into the
Transaction Agreement with Exxaro to acquire 74% of Exxaro’s
mineral sands operations. We accounted for the Transaction under
ASC 805, Business Combinations, (“ASC
805”), which requires recording assets and liabilities at
fair value. Under the acquisition method of accounting, each
tangible and separately identifiable intangible asset acquired and
liability assumed was recorded based on their preliminary estimated
fair values on the Transaction Date.
Because the total consideration transferred was less than the fair
value of the net assets acquired, the excess of the fair value of
the net assets acquired over the value of consideration was
recorded as a bargain purchase gain. The valuations were derived
from fair value assessments and assumptions used by management. The
measurement period ended in June 2013. The bargain purchase gain
was not taxable for income tax purposes. See Note 6 for a
discussion of the tax impact of the Transaction.
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Valuation |
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Consideration:
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Number of Class B Shares (1)
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9,950,856 |
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Fair value of Class B Shares on the Transaction Date
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137.70 |
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Fair value of equity issued (2)
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1,370 |
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Cash paid
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1 |
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Noncontrolling interest (3)
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233 |
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$ |
1,604 |
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Fair Value of Assets Acquired and Liabilities Assumed:
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Current Assets:
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Cash and cash equivalents
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$ |
115 |
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Accounts receivable, net of allowance for doubtful accounts
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196 |
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Inventories
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553 |
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Prepaid and other assets
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20 |
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Total Current Assets
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884 |
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Noncurrent Assets:
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Property, plant and equipment, net (4)
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880 |
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Mineral leaseholds, net (5)
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1,457 |
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Intangibles, net (4)
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12 |
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Long-term deferred tax asset
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30 |
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Other long-term assets, net
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19 |
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Total Assets
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$ |
3,282 |
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Current Liabilities:
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Accounts payable
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110 |
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Accrued liabilities
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25 |
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Unfavorable contracts (6)
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85 |
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Short-term debt
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75 |
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Deferred tax liabilities
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14 |
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Income taxes payable
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2 |
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Total Current Liabilities
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311 |
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Noncurrent Liabilities:
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Long-term debt
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19 |
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Long-term deferred tax liability
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209 |
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Asset retirement obligations
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57 |
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Other long-term liabilities
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27 |
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Total Liabilities
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623 |
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Net Assets
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$ |
2,659 |
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Gain on Bargain Purchase
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$ |
1,055 |
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| (1) |
The number of Class B Shares issued
in connection with the Transaction has not been restated to affect
for the 5-for-1 share split as discussed in Note 19. |
| (2) |
The fair value of the Class B shares
issued was determined based the closing market price of Tronox
Incorporated’s common shares on June 14, 2012, less a 15%
discount for marketability due to a restriction that the shares
cannot be sold for a period of at least three years following the
Transaction Date. |
| (3) |
The fair value of the noncontrolling
interest is based upon a structured arrangement with Tronox
Limited, which allows the ownership interest to be exchanged for
approximately 1.45 million additional Class B shares on the
earlier of the 10 year anniversary of the Transaction Date or the
date when the South African Department of Mineral Resources
determines that ownership is no longer required under the BEE
legislation. |
| (4) |
The fair value of property, plant and
equipment and internal use software was determined using the cost
approach, which estimates the replacement cost of each asset using
current prices and labor costs, less estimates for physical,
functional and technological obsolescence. |
| (5) |
The fair value of mineral rights was determined using the
Discounted Cash Flow (“DCF” ) method, which was based
upon the present value of the estimated future cash flows for the
expected life of the asset taking into account the relative risk of
achieving those cash flows and the time value of money. Discount
rates of 17% for South Africa and 15.5% for Australia were used
taking into account the risks associated with such assets, as well
as the economic and political environment where each asset is
located.
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| (6) |
The fair value of unfavorable
contracts was determined by multiplying the committed tonnage in
each contract by the difference between the committed prices in the
contract versus the estimated market price over the term of the
contract. |
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