I wrote last week about Iowa Fertilizer Company’s greenfield plant at Wever, IA, and mentioned that OCI NV had begun hinting about mergers and acquisitions activity in recent disclosures.
This “phase of consolidation” has now begun for the Dutch owner of both the world-scale plant under construction at Wever, IA, and the ammonia-methanol plant operating at Beaumont, TX.
Yesterday, OCI NV announced its offer to buy out the remaining shareholders of OCI Partners LP, the owner of the Beaumont plant, in an all-stock deal.
When OCI Partners LP was launched in 2013, OCI NV retained a 78.3% majority stake. But, because the Beaumont plant went over budget on its 2015 debottleneck project, OCI NV has made at least $80 million of “capital contributions” since then, increasing its ownership to 79.88%, as of December 2016.
According to OCI NV’s announcement yesterday:
OCI is proposing an exchange ratio of 0.5200 OCI N.V. shares for each publicly-held unit of OCI Partners, (the “Exchange Ratio”), as part of a transaction that is to be effected through a merger of OCI Partners with a wholly-owned subsidiary of OCI. In exchange, OCI will offer 9.10 million newly issued OCI N.V. shares, to be admitted to listing on Euronext Amsterdam, representing approximately 4% of total OCI shares currently outstanding. The proposed Exchange Ratio represents a value of $7.80 per unit to OCI Partners minority shareholders, or a 8.3% premium over the closing price of OCI Partners common units as of 5 December 2016 and a 25.6% premium over the 30 trading day average OCI Partners/OCI exchange ratio as of 5 December 2016.
OCI NV press release, 12/06/2016
One might assume that this merger will fly through the approvals process because both entities are overwhelmingly owned by the same individuals, even though it is subject to all the usual closing conditions. Nonetheless, it will also require the approval of “a Conflicts Committee to be established by the OCIP Board.”
When I wrote last week about the Wever plant, I quoted OCI NV’s earnings report:
“Starting 2017, we expect to enter a phase of consolidation, where all operational cash flows from the step-up in product volumes will be used to deleverage the balance sheet. We may also seek disposal of non-core assets and / or seek partnerships in certain stakes to accelerate the strengthening of our balance sheet, with the objective to achieve investment grade ratings by 2018 / 2019.”
OCI press release, 1H-2016 Earnings Results, 09/06/2016
There is another motivating factor in this transaction, one which has been rumbling around accountancy firms for some time now: forthcoming US Treasury rules, which may make the tax treatment of the Master Limited Partnership less attractive. As OCI NV’s CEO, Nassef Sawiris, explains:
“We believe the proposed transaction is attractive to minority investors in OCI Partners who, as new OCI N.V. shareholders, would have the opportunity to diversify from single-asset equity ownership to a leading global methanol and fertilizer producer. OCI has significant growth prospects with the start-up of two new world-scale greenfield facilities in the United States: a fertilizer complex in Wever, Iowa, and a methanol plant in Beaumont, Texas, adjacent to the facility owned by OCI Partners. In addition, it allows unitholders to benefit from the significantly better trading liquidity of the OCI N.V. share compared to OCI Partners. For OCI N.V. shareholders, the proposed transaction allows for simplification of the group’s corporate structure, greater operational synergies, including the removal of public listing costs and addresses concerns over the attractiveness of Master Limited Partnerships (MLPs) as an asset class in an environment of rising interest rates and potential changes in US tax regulations.”
OCI NV press release, 12/06/2016
More detailed information about OCI’s two ammonia plants in the US can be found in my Research Notes for Beaumont, TX, and Wever, IA.
UPDATE 12/08/2016:
Among the pertinent details is a clear sense of timing. They “hope to be in a position to enter into a Definitive Agreement before the end of January 2017,” and, if everything goes smoothly, it “would result in an expected transaction close as early as April 2017.”
OCI NV’s board also clarifies that the parent company is “interested only in acquiring common units of OCIP and not in selling interests in OCI or OCI GP LLC or approving any combination of OCIP with, or a sale of all or substantially all of the assets of OCIP to, any other acquirer.” I feel they might have added the words “at this time.”