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UPDATE 3-TPC Group gets higher buyout offer from Innospec

* Potential offer at $44 to $46 per share in cash

* TPC says will consider the non-binding proposal

* Shares of TPC closes 12.8 pct higher

(Adds Sandell comment, TPC and Innospec share close)

Oct 8 (Reuters) - Chemicals maker TPC Group Inc onMonday said it received a buyout proposal from Innospec Inc

worth as much as $721 million, topping an offer fromtwo private equity firms made in August.

Private equity firms First Reserve Corp and SK CapitalPartners in August had offered $627.2 million to acquire TPC.

The deals pit the private equity industry's desire to expandinto a high-margin sector against a chemical industry veteran'sattempt to expand.

TPC's main product is butadiene, used to make syntheticrubber for tires and other automotive products. But weak demandhas pressured its business this year as prices for butadienehave fallen sharply, causing a trough in TPC's market.

Innospec, a specialty chemical maker, could offer $44 to $46per share in cash, TPC said in a statement on Monday.

First Reserve and SK Capital offered $40 a share in lateAugust.

TPC shares have consistently traded above the $40 priceoffered by the private equity firms, and at least two of TPC'stop-10 shareholders have said they will vote against the deal.

"We urge TPCG to abandon the First Reserve deal, pursue theInnospec bid and solicit interest from other potential buyers ina full-blown auction to ensure that shareholder value ismaximized," third-largest shareholder Sandell Asset ManagementCorp said in a statement late Monday.

Sandell owns about 7 percent of TPC as of Oct. 2, accordingto Thomson Reuters data.

TPC said it will consider the non-binding proposal fromInnospec. It previously said a transaction with First Reserveand SK Capital Partners would be in the best interest ofshareholders.

Perella Weinberg Partners LP is advising TPC. Blackstone is providing equity financing forInnospec.

TPC shares closed at $45.88 while Innospec shares closed at$33.37 on Monday on the Nasdaq.

(Reporting by Ernest Scheyder in New York and Krishna N. Dasand Divya Lad in Bangalore; Editing by Don Sebastian and LeslieAdler)

((ernest.scheyder@thomsonreuters.com)(Twitter:

@ErnestScheyder)(646-223-6119))

Keywords: TPCGROUP OFFER/INNOSPEC