Wesfarmers continues to be pointed to as the most likely buyer of Incitec Pivot as a profit downgrade last week coincided with the departure of chief executive Jeanne Johns.
Incitec Pivot insiders say the company has spent years working on a possible tie up of the $5.5bn business with Wesfarmers’ chemicals unit.
Wesfarmers’ chemicals, energy and fertilisers arm includes CSBP, which manufactures and supplies ammonia, ammonium nitrate and industrial chemicals to the West Australian resource and industrial sectors.
It also holds CSBP Fertilisers, which manufactures, imports and distributes phosphate, nitrogen and potassium-based fertilisers for the WA agricultural sector, as well as Australian Gold Reagents, Queensland Nitrates and energy solutions provider Kleenheat.
Incitec Pivot operates on the east coast and is the largest supplier of fertilisers in Australia, as well as the largest supplier of explosives and services in North America and the second largest supplier of explosives globally.
The companies are considered a perfect fit, with ammonium nitrate complementary to fertilisers, and a deal would offer Wesfarmers exposure to the east coast market. But cashed up Wesfarmers is known to be disciplined on price.
Sources say private equity firms have shied away from Incitec Pivot over the years, unable to get comfortable with the earnings volatility and the exposure to gas.
A trade sale to another strategic player is thought to be tough, because many boards did nor want exposure to explosives.
Global rivals Nutrien, which operates in the local market, and CF Industries are thought to have knocked on Incitec Pivot’s door numerous times for the fertiliser operation. But the understanding is they were not prepared to offer a high enough price. Both already have access to phosphate that Incitec Pivot produces elsewhere in the world, so they would not offer a price that values that, but it would expand their distribution into the Australia market.
Private equity firm BGH Capital also made an approach about five years ago for the fertiliser operation, offering between $300m and $400m.
Incitec has since closed its fertiliser plant at Gibson Island in Queensland, so its earnings from fertilisers would be less.
The suggestion is that investors have cooled on a sale of fertilisers, arguing the company is better together.
Following the sale of its ammonia plant in the US, which was considered a cash cow despite the volatile nature of its earnings linked to commodity prices, Incitec needs to find a way to replace that revenue.
Other possible buyers of the fertiliser business could be US-based Koch Industries or The Mosaic Co.
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