Orica becomes a private equity target

Orica has become the latest target in AustraliaÆs leveraged buy-out blitz, with the company confirming that it has received a A$32.00 per share cash offer from a consortium that values the business at nearly A$10 billion ($8.3 billion). The proposal has been rejected.

The non-binding and indicative proposal came from a group of four LBO firms including Bain Capital Partners, Blackstone Capital Partners, Pacific Equity Partners and Morgan Stanley Principal Investments. The cash offer of A$32.00 a share represents a 15% premium to the closing price of OricaÆs shares on Tuesday when the offer was made. Though, the companyÆs shares immediately traded up A$5.61 yesterday to A$33.50 a share following the takeover news.

Chairman of Orica, Don Mercer, says the proposal was carefully considered but rejected on the grounds that it ôsignificantly undervalues Orica and its growth prospectsö. The company is being advised on its takeover defence by UBS.

The mining services company has become a darling of the Australian market, making two large and successful international acquisitions since 2005 and issuing several well-received capital markets transactions. In September 2005, Orica teamed up with Macquarie Bank to pay $1.7 billion for explosives business Dyno Nobel, a company founded in 1866 by the inventor of dynamite and father of the Nobel prize, Swede Alfred Nobel. Orica spun out the pieces of the business that it didnÆt want and assumed Dyno Nobel's operations in Europe, the Middle East, Africa, Asia and Latin America. Orica is now the biggest maker of explosives in the world.

More recently, Orica paid ú343 million for UK-based mining chemicals provider Minova representing a multiple of 8.9 times 2006 calendar Ebitda. That deal, completed at the end of last year, added about A$420 million in sales revenue and A$98m in profit to the companyÆs P&L.

At the same time, Orica has divested of various non-core businesses such as interests in Incitec Pivot, Qenos and Adhesives & Resins.

Earlier this year, FinanceAsia recognised OricaÆs capital markets savvy with the Best Equity-Linked Deal Award in Australia for 2006 for its A$500 million step-up preference securities transaction. The Citigroup and Macquarie Bank led deal took advantage of new equity credit treatment by the ratings agencies, and re-opened the doors for other corporate issuers in AustraliaÆs hybrid market.

Mercer says Orica has generated total shareholder returns over the five previous years of more than 500%, outperforming the S&P/ASX200 index. He says the company is on target to achieving its 2007 financial results and that it continually sees opportunities to grow the business.

It is no surprise that such a well-managed company has come under the radar of private equity. Australia is in the grip of a LBO frenzy with more than A$26 billion ($20 billion) worth of deals announced in the second half of 2006. Since then, an A$11 billion bid has been made for national airline Qantas, and a A$20 billion bid for retailer Coles.

Pacific Equity Partners, one of the partners in the Orica deal, is involved in the Coles takeover as part of a group of firms backing WesfarmersÆ bid for the company. Another two of the Orica players, Blackstone Group and Bain Capital, are also involved in Coles, but as part of a KKR-led consortium which is likely to make a revised offer for Coles in the next week or two. So far, neither of these US-based firms has put a score on AustraliaÆs private equity board, though they have made a few attempts.