India“s Tata Chemicals Ltd said on 31 January 2008 that it has agreed to buy US soda-ash producer General Chemical Industrial Products Inc, giving it access to low-cost natural soda ash reserves and …
India“s Tata Chemicals Ltd said on 31 January 2008 that it has agreed to buy US soda-ash producer General Chemical Industrial Products Inc, giving it access to low-cost natural soda ash reserves and a presence on the North American market. The Indian chemicals manufacturer said it will pay USD 1.005 billion to private equity firm Harbinger Capital Partners for its largest acquisition to date. The US firm, which earned revenue of USD 400 million in 2007, has no debt obligations. “This acquisition gives us ownership of another low-cost soda ash asset. This one is timely, as we picked up a US asset when the rupee is strong”, Tata Chemicals managing director Homi Khusrokhan told reporters. Tata“s total soda ash capacity will rise from 3 million to 5.5 million tonnes a year, which analysts said will make it the second largest producer in the world. Brussels-based Solvay , the biggest, has an 8 million-tonne capacity. Tata Chemicals acquired the UK“s Brunner Mond Group in December 2005 for INR 8.6 billion (USD 220 million), giving it soda ash capacities in Europe and Africa. General Chemical operates a 2.5-million-tonnes a year soda ash capacity in Wyoming, a region that holds the world“s largest reserve of raw ore. It holds nearly 100 years worth of extractable deposits in the area, Mr. Khusrokhan said. “It is important to have low-cost advantage. If and when there is downturn in the industry, we will have protection through our cost advantage”, he said. Operating margins for natural soda ash are nearly double that for synthetic soda ash at 30%, analysts said. Tata Chemicals shares reached a high of INR 347 on the news, but markets finally gave a negative verdict on the deal on valuation concerns, with the share ending 7.3% lower at INR 305, in a weak Mumbai market. Analysts said that at the current valuation, Tata Chemicals paid around INR 16,000 per tonne of soda ash capacity, comparable to similar deals by Indian companies recently. “Three years back, they paid about INR 5,000 a tonne for the Brunner Mond capacity. At the current price, it looks like the US company“s realisations are on the lower side”, Ashwani Agarwalla, analyst at Mumbai-based PINC Research said. Tata Chemicals said funding details had not yet been clarified but these would be a mix of debt and equity, and a lot of options were available. “They are most likely to raise debt, as debt-equity ratio is in control right now. They also hold equity investments of nearly INR 15 billion, which they could liquidate”, said Rohan Gupta, analyst at Emkay Shares & Stock Brokers. “There is huge demand for soda ash in construction, auto, and detergents as developing economies grow”, Mr. Khusrokhan said.