Guess which ASX 200 stock is frozen on a $976 million acquisition

This company is about to throw down more than one-tenth of its value to double its production.

| More on:
A fit man sits and prepares to dive into a hole made in frozen ice.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Australian share market is mimicking last night's muted display from Wall Street, with the S&P/ASX 200 Index (ASX: XJO) down 0.6% to 7,610.5 points at lunchtime. However, one ASX 200 stock is dodging the carnage today, being completely motionless.

Escaping the judgemental glance of investors, Orica Ltd (ASX: ORI) hit the pause button on its shares before the market sprung to life this morning. As a result, shares in the commercial explosives and blasting systems manufacturer are stationary at $16.85 apiece.

The intervening move is not without reason. Orica was granted a trading halt before an announcement relating to a corporate transaction and an associated equity raising, the details of which have now been released.

What's being acquired?

According to the release, Orica has entered into a binding agreement to acquire 100% of Cyanco Intermediate 4 Corp.

Cyanco makes and distributes sodium cyanide for silver and gold extraction. The United States-based company was founded in 1990 and supplies its extraction products to customers in the mining industry across the US, Canada, Mexico, Latin America, and Africa.

Orica will pay US$640 million — equivalent to A$976.4 million — to Cerberus Capital Management to acquire the company on a cash-free, debt-free enterprise value basis. The purchase price equals an implied multiple of 7.5 times 2023 earnings before interest, taxes, depreciation, and amortisation (EBITDA) before synergies.

To fund the deal, the ASX 200 stock will tap its existing cash and debt facilities for the majority of the required payment. It will raise an additional A$400 million through an underwritten institutional placement (capital raise).

Finally, Orica will offer A$65 million as a non-underwritten share purchase plan for eligible shareholders.

How is it expected to benefit Orica?

Orica is already a substantial producer of sodium cyanide. The acquisition of Cyanco is slated to double the company's production of the mining chemical to around 240,000 tonnes per annum. Moreover, the deal will expand Orica's presence in North America through Cyanco's existing clients.

On this, Orica managing director and CEO Sanjeev Gandhi said:

Cyanco is a highly complementary business, and by combining it with our established sodium cyanide business, Orica will create a leading integrated global sodium cyanide producer with world-class supply capabilities in mining.

The Acquisition will more than double Orica's existing sodium cyanide production capacity and provide us with the ability to cater to the highly attractive US and Canadian gold mining industries.

Gaining access to Cyanco's Nevada and Texas manufacturing plants is also attractive from a cost perspective. The region benefits from low-cost natural gas, allowing the company to be more competitive in price.

Lastly, ongoing cost synergies are anticipated to be US$10 million per annum after three years of ownership.

What's next for the ASX 200 stock?

The next step is for Orica to undertake the capital raising activities, the first of which is the placement.

As per the announcement, the company aims to raise A$400 million through the placement at A$15.84 per share. This would represent a 6% discount to the last traded Orica share price of A$16.85.

Meanwhile, the company expects to send the share purchase plan on 29 February. This will allow shareholders to apply for up to $30,000 worth of new shares as part of the $65 million raising, closing on 18 March 2024.

Finally, FY2024 earnings remain unchanged from those previously shared.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Mergers & Acquisitions

Animation of man and woman shaking hands on a deal on top of gold coins.
Mergers & Acquisitions

Which ASX companies are deploying dividends to secure a $1.9 billion deal?

Dividends appear to have sealed the deal for an ASX mega-merger.

Read more »

2 workers standing in front of a wind farm giving a high five.
Energy Shares

Origin shares fall despite 'highly strategic' $300m renewable energy acquisition

Origin is taking a big step in its clean energy transition.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Consumer Staples & Discretionary Shares

Ansell shares jump 14% amid blockbuster acquisition

Ansell is making a big acquisition and it could be a big boost to its earnings.

Read more »

A male ASX investor on the street wearing a grey suit clenches his fist and yells yes after seeing on his ipad that the Paladin share price is going up again today
Technology Shares

This ASX All Ords small-cap is soaring 33% on a takeover bid

This tech stock has received a takeover offer. But is it enough?

Read more »

Health professional putting on gloves.
Mergers & Acquisitions

Ansell share price hits pause as company gloves up for $975 million acquisition

Ansell shares won't be trading for a while...

Read more »

Smiling elderly couple looking at their superannuation account, symbolising retirement.
Financial Shares

Suncorp share price hits new 52-week high amid $375m asset sale

Suncorp is offloading another asset as it reshapes its business.

Read more »

a woman drawing image on wall of big fish about to eat a small fish
Mergers & Acquisitions

Guess which ASX 300 stock is jumping 9% after receiving a takeover offer

A South Korean chaebol has its eyes on this stock.

Read more »

A man sits in a chair hunched over a laptop and covered head to toe in frozen icicles to represent Envirosuite's trading halt
Mergers & Acquisitions

APM share price placed on ice as $1.8 billion deal goes dud

It's all question marks and raised eyebrows for shareholders of this ASX company today.

Read more »