Incitec Pivot fertiliser unit back in BGH Capital’s crosshairs

BGH Capital may be back in the market for Incitec Pivot’s fertiliser business. Picture: Heidi Petith

As BGH Capital continues to eye up acquisition opportunities, one of the more interesting targets it has turned its attention back to is understood to be the fertiliser unit of Incitec Pivot.

The Melbourne-based private equity firm looked at the unit when it was placed up for sale by Macquarie Capital and UBS before the global pandemic hit in 2020. However, it was only ever interested in offering up to $400m, far below the company’s price expectations that were closer to $1bn, say sources.

But it is understood that those around the company have been paying a visit to private equity shops in the past few months after calling off a sale to Indonesian buyer Pupuk Kaltim.

However, the market chatter is that while BGH is understood to have revisited the opportunity, it’s not thought to have been fully convinced it is an opportunity worth pouncing on.

BGH Capital knows the business well, given that one of its managing partners, Robin Bishop, is the former head of investment banking at Macquarie Capital and sold Incitec Pivot the listed Dyno Nobel business in 2008 for $3.3bn, transforming the company into a diversified international business with world-scale explosives and fertiliser manufacturing, marketing and servicing operations.

DataRoom reported last month that there was activity once again around the $6bn Incitec Pivot with some expecting the fertilisers business to be broken up and sold off in parts.

Nutrien would be the obvious buyer, while Elders may look along with Ridley, but they would likely only want its distribution operations rather than the manufacturing arm, which is now only a small part of the business and is mainly involved in the blending process of fertiliser rather than manufacturing it from scratch.

When it was previously on the market, parties put in offers for parts of the fertiliser business, hoping to cherrypick assets such as its up-country blending facilities.

Analysts believe it makes sense to split off the distribution unit of the fertiliser business and sell it to a different party, while another party would own the heavy manufacturing, consisting of the Phosphate Hill monoammonium/diammonium phosphate plant and a sulfuric acid plant at Mount Isa.

Incitec closed its Gibson Island ammonia manufacturing plant in Brisbane last year.

The company had faced gas supply disruptions at its Phosphate Hill operations and a shortfall in sulfuric acid from Mt Isa, slashing its earnings.

The sulfuric acid plant collects and cleans sulphur dioxide from Glencore’s copper smelter in Mt Isa before converting it to sulfuric acid. It is capable of producing up to 3700 tonnes.

Morningstar says the fertiliser unit accounts for about a third of its fair value estimate on the stock or about $1.20 per share, which puts a value on the unit at about $1.2bn.

Meanwhile, BGH Capital is expected to sell its cybersecurity business CyberCX within the next year through Goldman Sachs as it considers an acquisition of logistics assets put on the market in Australia by Singapore Post.

Sources were pointing to Macquarie Capital as the likely adviser for BGH Capital on that transaction.

Bids are expected to be due in the next fortnight, with information memorandums out in the market.

BGH will be up against Brookfield, Blackstone, Kohlberg Kravis Roberts, Pacific Equity Partners and EQT.

On offer are the Singapore Post-owned businesses Freight Management Holdings and CouriersPlease, which are being sold through Bank of America in a deal expected to be worth at least $1bn with the businesses generating at least $120m of annual earnings before interest, tax, depreciation and amortisation.