Chemnet Auction Put On Hold

SYDNEY/HONG KONG (Reuters) – The auction for Orica Ltd's (ORI.AX: Quote, Profile, Research, Stock Buzz) Chemnet division has been put on hold after bids came in lower than the company expected, sources close to the matter said on Friday.

Melbourne-based Orica (ORI.AX: Quote, Profile, Research, Stock Buzz), the world's largest explosives maker, hired Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) to sell its chemicals distribution unit, hoping in part to raise money to expand its explosives business that serves mining companies. The chemicals unit is said to be worth A$723 million ($689 million).

Reuters reported late last month that CVC Capital Partners [CVC.UL], Kohlberg Kravis Roberts & Co [KKR.UL] and BC Partners were among the private equity firms pursuing the unit. But sources on Friday said bids came in lower than expected, prompting the company to keep the asset for now rather than sell it.

Goldman and Orica declined to comment.

One source familiar with the process said he would not be surprised if further expressions of interest emerged for Chemnet.

A banking source, who was arranging debt for the deal, said Australian private equity funds Pacific Equity Partners (PEP) and CHAMP Private Equity dropped out of the race earlier this week, leaving Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz) among few interested parties in the fray.

He said the lukewarm response eventually led the deal to be pulled out of the market.

PEP and CHAMP could not be reached for comment.

Chemnet, Australasia's leading chemicals trading business, sells chemicals to a range of industries, including the food and drink, pharmaceuticals and construction sectors.

Chemnet posted A$40.6 million earnings before interest, taxes, depreciation and amortisation (EBITDA) in the six months to end-March.

But it was the least profitable of Orica's five divisions during that period, making 16 percent of its A$5 billion sales but only 7.7 percent of its A$528 million EBITDA.

Although Chemnet's EBITDA grew at a healthy 12.5 percent from a year earlier, it grew more slowly than the other businesses.

One private equity fund manager said buyout deals were being delayed or scrapped due to the difficult credit markets. “Banks are not willing to write cheques and it's hard to get funding,” the fund manager said.

Private equity firms, which typically buy companies with borrowed money and sell them later, are attracted to units being divested because they are usually easier to turn around. With a renewed focus on the “non-core” business, buyout firms usually seek to change management, cut costs and streamline the units. Last year, Bain Capital, Blackstone Group, PEP and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) Principal Investments offered A$32 a share for all of Orica. Orica rejected the offer.

Orica shares closed up 0.3 percent at A$30.79 on Friday, while the benchmark S&P ASX 200 index fell 1.5 percent to a three month closing low. ($1=A$1.05) (Reporting by Denny Thomas, Sonali Paul and Michael Flaherty; Editing by Lincoln Feast) ((denny.thomas@reuters.com; +61 2 9373 1812; Reuters Messaging: denny.thomas.reuters.com@reuters.net)