Ridley agrees to buy Dyno Nobel fertiliser distribution unit for $375m

Ridley has agreed to buy the distribution business of Dyno Nobel, and will raise $125m to fund the transaction. Picture: iStock

A deal to buy the fertiliser distribution business of Dyno Nobel (formerly Incitec Pivot) has been a long time coming for Ridley, with the $700m listed agriculture group eyeing the unit for about four years.

By being patient, Ridley has secured the operation for up to $375m, less than what it was on the market for last year when the asking price for the overall fertiliser business was over $1bn.

The animal feed manufacturer and distributor was flagged as a suitor by DataRoom last month, and was known to be keen to buy the business last year if the distribution unit was available in isolation, as Macquarie Capital and Jarden got on the ticket.

But an acquisition has been on its agenda since at least 2023, after management, led by Quinton Hildebrand since 2019, has worked to turn the company around and win over investors.

Mr Hildebrand is well regarded, and the board offered him a retention payment of about $1m when he was offered chief executive job at Elders in 2023.

The understanding is that Ridley was not offering the highest price for the unit, but could execute on a transaction faster than a Japanese rival that would have bought all of the fertiliser division.

Ridley has good relationships with Dyno Nobel customers, and it is seen as a good operator, and plans to invest.

But the customers of Dyno’s fertiliser business may not have wanted to deal with Nutrien and Elders as owners, which also would have had synergies, given they would be rivals and were not thought to be in the final mix of the sale process.

Suitors from Japan in the contest early on were groups like ETG, Mitsui and Marubeni.

Distribution is most appealing, as manufacturing fertilisers is less profitable.

Ridley came back with a revised lower bid in recent weeks when confident of its position.

Still, the overall $835m headline price for the fertiliser assets worked out to be higher for Dyno Nobel.

Pushing the price up were adjustments to working capital and more money extracted from pairing Ridley with Macquarie Commodities and Global Markets that purchased the Perdaman Offtake agreements from Dyno Nobel for $145m.

Deal terms

Ridley told the market on Monday that it would buy Incitec Pivot Fertiliser Distribution for $300m and have put-call options in place to subsequently acquire its Geelong North Shore property for $75m.

For the 2024 financial year, the unit generated $86m of annual EBITDA and the price paid by Ridley implies 5 times EBITDA.

Excluded from the acquisition is the Phosphate Hill fertiliser manufacturing operations and the closure and remediation costs associated with the Gibson Island and Geelong manufacturing operations.

Earlier negotiations with Indonesian buyer Pupuk Kaltim to buy all of Incitec Pivot Fertilisers failed to result in a deal when for sale through UBS and Macquarie.

Now UBS is advising Ridley, and it will raise $125m to pay for the deal.

Of that, $90m of funds will be by way of a 1 for 7.43 entitlement offer and a $35m institutional placement and the issue of $50m of vendor notes to Dyno Nobel.

Shares are being sold at $2.33, a 9 per cent discount to Ridley’s last closing price.

Ridley’s largest shareholder, AGR Agricultural Investments, with 19.4 per cent, will take up its full entitlement after expressing support for the acquisition.

Ridley will also take on a new $350m revolving debt facility with ANZ and Westpac, replacing its existing $150m facility.

And it has also received binding commitments for $300m of working capital debt.

The future

The drawcard for Ridley is that the business, which will become 45 per cent of its overall earnings before interest, tax, depreciation and amortisation, makes it more diversified and defensive.

Its bulk stock feed business does not do as well in dry conditions, whereas fertilisers is the opposite.

Ridley will not exclude itself from other future acquisitions, but this will be its current focus.

Ridley said the acquisition was expected to be about 25 per cent earnings per share accretive in the 2026 financial year with synergies of $7m expected each year from consolidation of back office and support costs, realised over two years.

It has also secured supply from the holder of the contract with Perdaman Chemicals and Fertilisers of at least 700,000 per annum of urea post-commissioning of the Perdaman urea plant, expected by 2028.

The distribution unit has 46 per cent of the east coast market share with 13 primary distribution centres and seven regional service centres and three Easy Liquid distribution sites.

Post acquisition, Ridley will also have access to ongoing supply from Phosphate Hill via an offtake agreement, but the operations are subject to a strategic review, which is focused on finding a buyer.

Ridley said the deal offers a complementary distribution footprint with shared competencies and customers, establishes a new growth pillar with scale and a number one market position and broadens and diversifies Ridley’s portfolio.

Ridley said in its recent trading update that conditions were being impacted by lower selling prices in the Ingredient Recovery business with avian influenza related export market restrictions on poultry meals and oils.

Also, a one-off impact of lower packaged product sales volume related to the recent weather events in Queensland.