WOOHOOO!!! Just posted in AFR

Pivot nears $1.5b fertiliser sale

KEYPOINTS

• Why it matters: Incitec Pivot is Australia’s biggest fertiliser manufacturer
• Any sale of the fertiliser division would end the company’s plans to demerge it
• Any agreement to sell to an Indonesian suitor would require FIRB approval

IncitecPivot has tapped Indonesia’s Pupuk Kaltim as the preferred buyer of its bigAustralian fertilisers business, fuelling expectations of a deal worth about$1.5 billion and a potential showdown with politicians and farmers.

Incitec Pivot has arranged sitetrips and due diligence for Pupuk Kaltim in recent days, according to sourcesinvolved in the talks, and turned away other suitors in favour of negotiating abilateral deal with the group.

Farmers use Incitec Pivot’s nitrogenand phosphorus-based fertilisers to grow pastures and food. Peter Braig

Incitec Pivot’s fertilisers business is Australia’s biggest fertiliser manufacturer and distributor, with about 50 per cent manufacturing and distribution market share in the agriculture-heavy eastern Australian states. Farmers use its fertilisers toimprove pastures and grow crops, making it an important part of the country’s food industry.

The fertilisers business makes about$2 billion revenue and about $200 million in earnings in a normal year;however, there is considerable volatility caused by global fertiliser pricesand Australia’s agricultural cycle.

The unit expected to be worth about$1.5 billion.

An Incitec Pivot spokesman declined to comment on Wednesday.

Incitec Pivot shareholders arebroadly supportive of the sale talks. The company’s shares are down 20 per centthis year, have largely traded sideways for the past 15-years, and investorsare keen to see the board explore ways to create value.

Blake Henricks, a portfolio managerat Firetrail Investments in Sydney, says the fertilisers unit accounts for lessthan one-quarter of Incitec Pivot’s underlying value and could be worth more inthe hands of a strategic buyer. Firetrail owns a 5.12 per cent stake, accordingto a filing in May.

“I think there is some prettyserious value there,” Mr Henricks said. “I do think it is probably worth moreto someone else than it is on its own; say a global diversified business thatcan plug the Australian assets into its network, or someone who can bring acheap source of gas to the table.”

Mr Henricks said Incitec Pivot had astrong balance sheet and was “in quite a robust position to do what’s best forshareholders”.

Pupuk Kaltim is a relative unknownin Australia’s agriculture sector. It is an Indonesian state-owned enterprisethat has previously said it wanted to get its hands on phosphate and potashfertiliser assets, unavailable in Indonesia, to support the country’s long-termfood security.

Any deal would be subject to ForeignInvestment Review Board approval, and potentially shapes a significant test forthe Albanese government. Incitec Pivot’s fertilisers business is an importantplayer in Australia’s agricultural sector, particularly in the eastern states,and a big employer in regional Queensland where it owns the Phosphate Hillmanufacturing plant.

The sale talks play out as IncitecPivot has also been considering a demerger that would split the fertiliserbusiness from the company’s larger explosives unit. However, the decision toproceed with Pupuk Kaltim as preferred buyer suggests the demerger is on thebackburner.

Incitec Pivot confirmed approachesfor its fertilisers business last month. “The board’s assessment of a potentialsale is being considered alongside the proposed demerger, which remains astrategic priority for the board. The board will continually assess all optionsto ensure shareholder value is maximised,” the group said in a statement to theASX on July 12 in response to a report in The Australian Financial Review’s Street Talk column.

Should it strike a deal, it would bethe second significant asset sale for Incitec Pivot in the past six months. In March, it announced a $US1.7billion ($2.5 billion) to sell its ammonia manufacturing facility in Louisianain the United States, following pressure from investors. Incitec Pivot CEO Jeanne Johns has since left the company, as has fertilisers boss ChristineCorbett.