Australian explosives maker Orica said on Wednesday that it has agreed to sell its chemicals unit to Blackstone for A$750 million ($648 million).
The US private equity firm fended off competition from rival Bain and also convinced Orica, formerly the Australian arm of Britain’s ICI PLC, not to go down the route of a demerger.
“The certainty as to value and outcome of this transaction is a good result for Orica shareholders,” Orica’s chief executive officer, Ian Smith, said in a statement.
Orica said in August that it had completed a strategic review of its chemicals business and would either sell or demerge the unit. But Australian management boards generally view a spinoff via a listing as a lower risk approach than a trade sale, with less criticism likely from shareholders.
Global mining giant BHP Billiton bowed to investor pressure earlier this year to unlock value by spinning out assets and now plans to list most of its aluminium, coal, manganese, nickel and silver operations in London via a new company called NewCo.
Orica itself successfully spun off paint firm Dulux in 2010.
For Blackstone, the deal is a coup. The New York-headquartered firm has pursued the company for some time, making an unsuccessful $8.3 billion bid for all of Orica in 2007 in a consortium including Bain.
The question remains how will it create value at the company going forward.
Blackstone has significant expertise in the sector having bought Germany’s Celanese in 2003. In Asia it paid $600 million for a 20% in China National Chemical Corp.’s unit BlueStar.
Blackstone’s senior managing director and head of private equity for Australia, James Carnegie, led the deal for Orica's chemicals unit, which includes its chemicals trading businesses in Australia, New Zealand and Latin America and its Australian Chloralkali manufacturing business. It also comprises Bronson & Jacobs, a supplier to the health foods industry in Australia, New Zealand and Asia.
As part of the transaction, Orica will retain responsibility for legacy environmental remediation obligations.
The deal is subject to Australian Foreign Investment Review Board and New Zealand Overseas Investment Office approval and other customary conditions including Material Adverse Change provisions. It is expected to close in the first quarter of next year.
JP Morgan was Blackstone’s financial advisor and Morgan Stanley provided Blackstone with financing.