Wesfarmers in the frame as the race for Incitec Pivot heats up

DataRoom understands that three parties have approached Incitec Pivot about an acquisition of its fertilisers unit.

Could Wesfarmers be more than just a keen observer when it comes to Incitec Pivot?

There’s talk in the market that the Perth-based conglomerate may have made an approach in the not too distant past.

DataRoom understands that three parties have approached Incitec Pivot about an acquisition of its fertilisers unit.

And while all the attention may be on a possible Asian buyer, some suspect that the real interest is from a group closer to home, or one that made an earlier approach.

Still, it never hurts to have a stalking horse to get a company like Wesfarmers, CF Industries, Nutrien or The Mosaic Co to pay a higher price.

Even private equity may stump up the money. BGH Capital approached previously, but only offered $300m to $400m.

These days, Wesfarmers is run more like a private equity firm and has heightened sensitivity to environmental, social and governance issues.

Yet Incitec Pivot and Wesfarmers have an explosives joint venture together, QNP, which sells explosives to coal miners.

A play for fertilisers makes a lot of sense for Wesfarmers, given the synergies it can extract from its own business.

It will all come down to price.

No one knows the value of the business better than chief executive Rob Scott, who previously ran Wesfarmers’ industrial division.

He is known to be highly disciplined on price, as is Michael Britton, who leads business development and previously worked at Carlyle.

It’s unlikely a deal is imminent, given that the boss of Wesfarmers’ chemicals, energy and fertilisers unit has recently been overseas.

The book value of the
division is about $650m, but a compelling offer would need to be between $1bn and $1.5bn due to tax leakage, according to analysts.

Otherwise, the better option is the planned demerger.

Companies in the agriculture sector typically sell for eight to nine times earnings before interest, tax, depreciation and amortisation.

Incitec Pivot is being advised by Macquarie Capital and UBS.

On May 31 DataRoom reported on speculation that a major equity raising or large transaction was afoot at Incitec Pivot, after the $5.9bn company paused its $400m share buyback.

Some suspected it had fielded a buyout approach for the company as a whole, or the fertiliser unit.

The fertilisers business has a strong market position on the east coast of Australia, but has had problems linked to gas shortages.

Wesfarmers’ interest probably centres on its distribution capabilities rather than its ageing Phosphate Hill plant in Queensland.

Melbourne-based Incitec Pivot is lacking leadership after its managing director Jeanne Johns recently stepped down and the proposed chief executive of the fertilisers unit, Christine Corbett, left last month.