Pacific Equity Partners may look at Incitec Pivot fertiliser unit

Morningstar says Incitec Pivot’s fertiliser unit accounts for about a third of the stock’s fair value – which means it comes in at about $1.2bn. Picture: Zoe Phillips

Sydney-based private equity firm Pacific Equity Partners is believed to be positioning itself to weigh a purchase of the fertiliser arm of Australian listed industrials group Incitec Pivot when it returns to the market.

The understanding is that Incitec Pivot is believed to be formally re-launching the sale process for its chemicals unit next year, given the volume of deals currently unfolding in the market attracting buyout funds.

DataRoom reported that BGH Capital has been reconsidering the business and recently had some informal talks after it put in an opportunistic offer of about $400m the first time it was up for sale, so it appears that this time around, private equity could be dominating the field.

Some market observers suspect that with the latest developments, the group is becoming increasingly keen to distance itself from the business and carry on life as a pure play explosives and industrial chemicals manufacturer.

It comes after a couple of previous formal attempts to sell the unit through sales campaigns, and it’s likely existing advisers Macquarie Capital and UBS would be running the auction.

There’s also been some informal interest from strategic players, with suggestions that groups such as Ridley or Nutrien may be keen to buy Incitec Pivot’s distribution assets.

Incitec Pivot held talks with Indonesia’s Pupuk Kaltim for a sale of the unit earlier this year for a price speculated to be over $1bn, but they did not result in a deal.

Sydney-based PEP has been active in the Australian market of late, considering plenty of acquisition opportunities including the Healius diagnostic imaging unit, aged care business Opal, Guardian Childcare and Education, I-MED and Waste Services Group. It comes as it weighs options, including a possible sale or equity injection for its $2bn Zenith Energy.

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 sulphuric acid plant at Mount Isa.

Incitec Pivot 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 sulphuric acid from Mt Isa, slashing its earnings.

Morningstar says the fertiliser unit accounts for about a third of the stock’s fair value – which means it comes in at about $1.2bn.