New Delhi: Tata Chemicals Ltd’s UK subsidiary Brunner Mond group has signed a definite agreement to acquire 100% of British Salt Ltd, a leading salt manufacturer in the UK, for £93 million (roughly Rs.655 crore) in a deal that will ensure a steady source of raw material and also give it a toehold in the UK food and industrial salt market.
Brunner Mond makes soda ash, widely used in several chemical industries, consumer products and food ingredients. British Salt has a 50% share in the UK’s pure dried vacuum salt products market, and it owns several brine (salt) wells in that country with a residual life of at least 50 years.
R. Mukundan, managing director, Tata Chemicals, said: “The acquisition is in line with the strategy of Tata Chemicals to deepen its presence in the ‘food and farm sectors’ and will result in securitising raw material for Brunner Mond’s operations. This will help Brunner Mond maintain its low-cost manufacturing position in Europe and provides a great opportunity to optimise the costs further.” An analyst who tracks the sector said the deal was an advantageous one for Tata Chemicals.
“British Salt is an unlisted firm with salt manufacturing capacity of more than 400,000 tonnes, comparable to Tata Chemicals’ domestic capacity of 600,000 tonnes. According to back-of-the-envelope calculations, the company can add Rs.400 crore to the consolidated revenues (3.5% of fiscal 2012 sales) and 5.6% to the consolidated profit for the fiscal 2012,” said Dikshit Mittal, a research analyst at Alchemy Share and Stock Brokers Pvt. Ltd.
Tata Chemicals’ chief financial officer P.K. Ghose said the transaction is entirely financed by debt on a non-recourse basis to itself. This means that the debt raised to fund the acquisition, which was made through Tata Chemicals Europe Holdings Ltd, a holding company, will not directly create a liability for it.
Mittal added that the deal is valued at around six times the operational profit of British Salt and that the transaction seems “fairly valued”.
The Tata group, of which Tata Chemicals Ltd is a part, has had a successful track record of acquisitions in the UK. In the late 1990s, Tata Tea acquired Tetley. More recently, Tata Steel acquired Corus and Tata Motors, Jaguar Land Rover.
Tata Chemicals is currently the world’s second largest producer of soda ash with manufacturing plants in India, the UK, Kenya and the US.
On Monday, its shares rose 0.12% to close at Rs.371.60 on the Bombay Stock Exchange on a day when the exchange’s benchmark index, the Sensex, went up 0.12% to close at 19,888.88.
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