Incitec Pivot Ltd. (IPL) confirmed that it has received a number of approaches for the potential acquisition of its fertilizer business. The news follows speculation that the group may be considering a potential sale amid doubts over whether its plan to spin-off Incitec Pivot Fertilisers (IPF) and the Dyno Nobel explosives business into standalone companies will succeed.
IPL in a July 12 Australian Securities Exchange (ASX) release said its Board is considering a potential sale alongside the ongoing proposal to structurally separate IPF and the Dyno Nobel explosives business, and that it will continue to assess all options “to ensure shareholder value is maximized.”
IPL’s shares jumped as much as 8.3%, the most since Nov. 15 last year, after the Melbourne-based group confirmed the unsolicited interest from potential buyers. IPL stressed that discussions are incomplete, however, and there is no certainty that any agreement will be reached or that any transaction will occur.
IPL declined to identify any interested parties, but The Australian Financial Review reported on July 11 that at least one Asia-based, state-owned enterprise has shown interest in buying IPF, with speculation focused on Pupuk Indonesia, a large fertilizer producer in the region, according to the report.
IPF is the largest distributor of fertilizers by volume in Australia, supplying 1.869 million mt to the domestic market in FY2022, down from 2.235 million mt in FY2021. It is the country’s sole manufacturer of phosphate fertilizers, producing 735,900 mt in FY2022 and 958,400 mt in FY2021.
IPL no longer produces its own urea following the closure of its Gibson Island plant in Brisbane at the end of 2022. It made the decision in late 2021 after being unable to secure “an economically viable” long-term gas supply to the facility beyond Dec. 31, 2022, when the existing contract ran out (GM Nov. 12, 2021).
However, IPL has lined up a 20-year offtake agreement for 2.3 million mt/y of granular urea from Perdaman Chemicals and Fertilisers Pty Ltd.’s Karratha plant, which is under construction on Western Australia’s Burrup Peninsula and expected to be commissioned in mid-2027 (GM April 21, p. 1).
IPL’s long-standing plan to separate its fertilizer business and Dyno Nobel has appeared increasingly uncertain after the departure last month of IPF CEO designate Christine Corbett (GM June 16, p. 26). IPL also announced in early June that its Managing Director and CEO Jeanne Johns was stepping down at the end of the month (GM June 9, p. 26).
IPL’s Fertilisers Asia Pacific saw a first-half EBIT decline of 58%, to A$107.7 million from A$256.9 million last year, mainly due to lower selling prices and softer demand, as well as higher costs (GM May 19, p. 24). Those cost pressure include buying natural gas on the spot market for its Phosphate Hill ammoniated phosphate fertilizer operation in Queensland after gas supplier Power and Water Corp. (PWC) declared a reserve shortfall.
As of June 9 (GM June 9, p. 25), IPL said it expects the total FY2023 EBIT impact from sourcing shortfall gas to be A$75-$90 million (approximately US$50-$60 million at current exchange rates).
The Dyno Nobel business has been faring better. Dyno Nobel Americas reported a 55% increase in first-half EBIT, to A$390.9 million, while Dyno Nobel Asia-Pacific saw a 45% rise to A$748.5 million.
The demerger plan has already been delayed once. In November IPL announced its decision to sell the Waggaman, La., ammonia plant ahead of the proposed demerger (GM Nov. 18, 2022), with CF Industries Holdings Inc. agreeing earlier this year to purchase the facility for $1.675 billion (GM March 24, p. 1).
IPL announced in May 2022 that it had revived plans to separate its IPF and Dyno Nobel businesses to create two separate companies, and that it was targeting to demerge its fertilizer and mining explosives divisions into two separate ASX listed companies by mid-2023 (GM May 27, 2022).
CTI analysts, as cited by a Dow Jones, reported on July 12 that IPL’s spinoff of its fertilizer business may offer “incremental valuation upside,” but noted that “there are risks given the weakness in urea and DAP pricing.” According to the report, the CTI analysts calculate IPL’s fertilizer business is worth A$1.8 billion (approximately US$1.2 billion at current exchange rates), or the equivalent of A$1.30 per share.