Speculation is mounting that either a major equity raising or large transaction is afoot at Incitec Pivot after the $5.9bn group paused its share buyback.
Sources have been told that the move to suspend the buyback at a time that it makes sense for the company because its share price is so low is due to “something material”.
Exactly what the material reason is remains unclear, but there are a few possibilities.
The fertiliser and explosives manufacturer has been clear in emphasising that its plan to demerge its fertiliser unit remains on the table, despite tougher industry conditions that have seen fertiliser prices collapse and higher energy costs, saying it will now happen at a later stage.
But some believe that the deal no longer makes sense, including activist investor John Ho, the founder of shareholder Janchor Partners who was appointed to the board this year.
There’s a few possibilities about what could be in the background with Incitiec Pivot and its adviser UBS.
Perhaps it has fielded it a buyout approach for the company as a whole or the fertiliser unit, which has been on the market in the past.
Earlier Nutrien, a customer accounting for about 40 per cent of its revenue, took a look and could be behind the move, although some believe it is an unlikely suitor.
Elders, which has shown some interest in the past and accounts for about 25 per cent of its sales, is not thought to be a contender.
The other possibility is a bid from Wesfarmers, which has aspirations to create a national fertiliser business, although Incitec Pivot is unlikely to clear the investment hurdles of the Perth-based conglomerate.
Others believe an equity raising is more likely. Incitec Pivot was on a road show visiting its Hong Kong-based hedge fund investors last week, which some believe could imply an equity raising, as it would need such groups on side.
If a major deal was afoot, a roadshow would be unlikely, as the group would be solely focused on the transaction.
It could be that Incitec Pivot needs to reassess how much capital is needed for the demerged entity, given its most recent performance.
The final option is that the company may be recutting the terms of the deal on its US-based Waggaman ammonia plant, with the demerger slated to happen after that deal is finalised. Incitec agreed to sell Waggaman for $US1.675bn in March to CF Industries.
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