INDIA BUSINESS WORLD - FEBRUARY 1st - FEBRUARY 15th - 2008
TATA CHEM BUYS US FIRM FOR $1 B
The Tatas celebrated the first anniversary of their acquisition of Anglo-Dutch steel giant Corus—the biggest foreign takeover by an Indian company so far—by announcing that group company Tata Chemicals (TCL) had entered into a definitive agreement to buy the soda ash business of US-based General Industrial Products for $1 billion.
Post-acquisition, TCL will become the world’s second-largest soda ash maker with a combined capacity of 5.5 million tonnes per annum (mtpa) and 14% share of the global market. Currently, Tata Chemicals enjoys 8% share of the global market with a capacity of 3 mtpa. Harbinger Capital Partners, the majority stakeholder in General Industrial Products, had put its soda ash subsidiary, General Chemical (Soda Ash) Partners, on the block.
TCL managing director Homi R Khusrokhan said: “It’s an auspicious day for the group. Exactly a year ago, Tata Group chairman Ratan Tata had announced the acquisition of Corus. I was sitting in the audience,” he recalled while announcing the deal. The $12.9-billion Corus acquisition catapulted Tata Steel to the world’s sixth-largest steel company from its previous ranking of 56.
“We are picking up the asset when the rupee is going strong against the dollar. This purchase will change TCL,” Mr Khusrokhan said. This will give TCL access to the target company’s cheap natural resources. General Chemicals produces natural soda ash, which uses less energy, capital and raw materials than synthetic soda.
The privately-held company has facilities and mines in Wyoming in the US. It has 100 years of extractable trona ore, which can be converted into soda ash, from its mines in the US. It also shares the Green River Basin with three other producers. It has a top line of nearly $400 million and “healthy bottom line”, Mr Khusrokhan said, declining to disclose further financial details on the plea that the proposed takeover is subject to regulatory approvals in the US.
But he said the margins in the soda ash business in the domestic market are better than those overseas. Then why did TCL go overseas? “The acquisition of natural soda ash resources has got significant cost advantage over synthetic raw materials and it’s a natural hedge against the commodity cycle.” Also, the acquisition will give TCL access to markets like North America, Latin America and the Far East.
On the funding of the acquisition, Mr. Khusrokhan said it would be a “mix of equity and debt”.
TCL CFO PK Ghose said, “The company has strong cash reserves” to fund the acquisition. Analysts said the company’s cash reserves stood at Rs 1,350 crore, including investments, as on March. “In addition, TCL will get the Tata Group’s support, if required, to mobilise funds for the purchase,” said an analyst. Lazard and Standard Chartered Bank acted as financial advisors to TCL for the deal.
The acquisition, which costs TCL nearly 2.5 times the target company’s size, however, has not gone down well with the stock market.
This is the second major overseas purchase by TCL—the first was the acquisition of a part of Brunner Mond in the UK two years ago. The Rs 6,000-crore TCL produces soda ash, cement, sodium bicarbonate and cooking soda. It’s the country’s biggest producer of salt. Its fertiliser division makes urea and phosphate. It posted a net profit of nearly Rs 500 crore last year. The company’s soda ash business generates 40% of its consolidated turnover. It has facilities in India, the UK, Netherlands and Kenya.
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