Brunner Mond U.K., a wholly-owned subsidiary of Tata Chemicals Ltd. (TCL), signed a binding agreement to acquire a 100 per cent stake in British Salt. The deal has been structured through a holding company, Tata Chemicals Europe Holdings, for a consideration of around Rs.650 crore (93 million pound sterling).
British Salt is U.K.'s leading manufacturer of pure dried vacuum salt products with a 50 per cent share of the U.K. market. It owns brine wells in the U.K. with residual life of 50 years. It has the capacity to produce in excess of 7.20 lakh tonnes annually and the acquisition provides Brunner Mond an opportunity to secure long-term brine supplies for its operations.
Addressing the media, R. Mukundan, Managing Director, Tata Chemicals, said, “the closure of the deal is dependent on regulatory approvals and is expected to be completed over the next 30-35 days.''
Brunner Mond is a leading manufacturer of sodium bicarbonate, sodium carbonate (soda ash) and associated alkaline products.
The company supplies customers from its plant in Northwich U.K. and Magadi in Kenya.
According to P.K. Ghose, Executive Director and CFO, Tata Chemicals, “the acquisition valued at 93 million pounds will be entirely debt financed on a non-recourse basis to Tata Chemicals. There will be deferred payment of 3 million pounds out of 93 million for three years by which time, certain targets must be met.'' “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 operations. This will help Brunner Mond maintain its low cost manufacturing position in Europe and provide great opportunity to optimise the costs further. The combined entity will improve overall financial position of our European operations,'' said Mr. Mukundan.
Brunner Mond needed a steady supply of brine for its U.K. operations as its contract with supplier Ineos expires in 2016 and British Salt is the only other brine producer in the UK. “British Salt's Middlewich unit is 8 km from Brunner Mond's facility at Northwich and has resources to meet Brunner Mond's requirement for 50 years,'' said Mr. Ghose.
He further said that the acquisition would result in the company's operating profit increasing by 15 million pounds and the synergies between Brunner Mond and British Salt would result in savings of 2 million pounds annually.
Apart from the core business of salt manufacturing and supply, British Salt is active in gas storage business with a promising business model which has potential to generate additional cash flows.
In the U.K., salt is not processed from the sea but mined from underground caverns. Once exhausted of salt deposits, the caverns are used for gas storage.
According to Mr. Mukundan, “in five years, after they are exhausted, they can be leased out for gas storage to other companies. As a one-off, this business can add up to 45 million pounds when surrendered to any energy company.''