Orica's Incitec Exit Ignites Deals

The Age

Wednesday May 10, 2006

By IAN PORTER, MANUFACTURING REPORTER

ORICA will raise at least $750 million with the sale of its 70 per cent stake in Incitec Pivot as part of a flurry of deals leading to further consolidation in the fertiliser industry.

Simultaneously, Incitec Pivot has agreed to buy Southern Cross Fertilisers from BHP Billiton at a knockdown price of $165 million, a third to half its assessed value last year.

Orica managing director Graeme Liebelt said the minimum of $750 million to be realised would be used to repay $400 million of debt. He also mentioned "capital management opportunities", raising the potential for a return of capital following the IPL exit.

This prompted a scramble for Orica scrip yesterday. The share price jumped 59?, or 2 per cent, to end at a record $25.67.

Orica will offer 55 per cent of IPL to professional investors through a book-build, underwritten at $18.30 a share.

IPL shares peaked at $19.75 on March 5 but have since dropped to $19. They were suspended before trade started yesterday.

IPL will buy the last 15 per cent at a price capped at $165 million, or $18.97 a share, and then cancel those shares, reducing its issued capital to 49.5 million shares.

The acquisition of Southern Cross Fertilisers will complete a consolidation of the fertiliser industry, started by Incitec in 2003 with its bid for farmer-owned Pivot co-operative.

SCF owns the Phosphate Hill mine in Queensland and a sulphuric acid plant at Mount Isa. It is the country's largest maker of di-ammonium phosphate (DAP) and mono-ammonium phosphate (MAP).

The acquisition will not increase IPL's 65 per cent share of the east coast fertiliser market as SCF does not deal directly with users. SCF's output of up to 1 million tonnes a year is split almost equally between sales to IPL, the ELF joint venture between Elders and Landmark and exports to Pakistan, Vietnam and other Asian markets.

The $165 million to be paid for SCF and the $165 million to be paid for the last 15 per cent of Orica's holding in IPL will swell IPL's debt to about $470 million and lift the company's gearing ratio from 20.5 per cent at March 31 to about 57 per cent.

IPL managing director Julian Segal, who will officially leave Orica and become an IPL employee, said the high gearing ratio would likely knock out any possibility of special dividends.

An IPL spokesman said the acquisition of SCF would not derail IPL's plans to resume importing phosphate rock from Nauru.

The first shipment is due late this year, after IPL refurbished the port facilities on the Pacific island.

The Australian Competition and Consumer Commission is expected to examine the acquisition, but is not expected to launch a formal investigation.

SCF's DAP and MAP products complement the ammonium nitrate-based fertilisers IPL makes. IPL also imports fertilisers and raw materials.

KEY POINTS

- Orica will get $750m-plus from the sale of its 70 per cent Incitec Pivot stake.

- IPL will pay $165m for Southern Cross Fertilisers.

- Orica shares jump to a record.

© 2006 The Age

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