This is a subscript from Tom Elliot - Eureka Report:
"Dyno Nobel. There’s no formal bid but Incitec Pivot has bought about 13% of Dyno Nobel, the explosives manufacturer that was spun out of Orica. Dyno Nobel has underperformed and it’s building a big ammonium nitrate plant, which has contributed to a $250 million cost blowout. The company is going to struggle to raise that extra money by itself, so the shares have fallen into a bit of a hole and that’s when Incitec Pivot struck. Incitec Pivot is currently in talks with Dyno Nobel’s board and my belief is that those talks will result in a bid. The bid could be anywhere from $2.50 to $2.75 a share, which is higher than where the stock was obviously trading previously.
Incitec Pivot is a fertiliser maker and Dyno Nobel makes explosives. Anyone that follows the news knows that these two products share a lot of common ingredients so there are a lot of synergies to be reaped. If Incitec Pivot decides to take over Dyno Nobel it could definitely finance the cost overrun. Would there be counter-bidders for it? Possibly. Given the mining bull market we’re having there’s also a strong market in secondary industries such as explosives. The stock is now trading at almost $2.50. If a bid doesn’t eventuate, the stock will go down.
So what we’ve been buying is convertible notes in Dyno (ASX code: DYNPA). They get converted at $115 a note if the company changes hands, and you can buy them for about $105. If a bid doesn’t eventuate they won’t go down much. They also pay a much higher dividend yield than Dyno’s ordinary shares so that’s a good safe way to play this particular transaction. So, like I said, there’s an element of risk here but I think it’s almost certain that Incitec Pivot will launch a bid. "
DXL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
