Just a fortnight after the AV Birla Group snapped up US-based carbon black manufacturer Columbian Chemicals, the race to acquire the world’s second largest player, Evonik’s carbon black business, is also hotting up.
According to independent sources involved in the ongoing talks, the RPG Group’s Phillips Carbon Black Ltd (PCBL) has tied up the financing to carry out the transaction, thereby making its serious intentions quite clear.
The company had already tied up debt of $900 million from ICICI Bank, said these sources. Sanjiv Goenka, PCBL chairman, would not comment on the matter. An offshoot of crude oil refining, carbon black is a key ingredient to the blackness in tyres and printing inks, toners, paints and conveyor belts.
Sources add that despite the debt being tied up, the total deal size could exceed $1.1 billion. For, unlike the Columbian transaction, there are multiple suitors, including some private equity (PE) funds, for Evonik’s carbon black.
It is expected that PCBL may not draw down the entire debt committed; instead, they may rope in PE funds themselves for a joint bid. That way, the equity component will go up and automatically bringing down the leverage. “Talks are on with a couple of large PE funds but it’s still early days,” said a source involved in the negotiations but who refused to be identified.
As on March 31, 2010, PCBL’s net sales stood at Rs 1,233 crore and net profit at Rs 123 crore, while its debt was Rs 508 crore. However, as on September 2010, PCBL’s debt stood at Rs 497.2 crore, while its net profit was Rs 53 crore, by Capital Line data.
A PCBL official, however, said that though the company had tied up financing for the deal, its bid would depend on the outcome of the due diligence, which would be completed in another week to 10 days. “If there are major concerns on environment, we may not make a bid finally,” he said.
Evonik, which is being advised by Barclays Capital and accounts for about a third of the worldwide capacity of carbon black, has 17 sites in 12 countries, employing 1,700 people. It ended the last financial year with sales of about $1.3 bn. If the deal materialises, PCBL would emerge as one of the world’s largest carbon black players and India would become a major powerhouse in the sector.