Even though the market had previously given a cautious thumbs up to the idea, it was far more circumspect yesterday when Orica (ORI) firmed up the idea of the getting rid of its chemicals business.
The idea is to allow the company to concentrate on its mining services division – especially its explosives business which is one of the largest in the world.
Orica floated the idea earlier in the year and the market, especially analysts, indicated general support.
Orica said yesterday that it was looking to either sell or spin-off the division, which has had a number of pollution problems in Newcastle and Sydney in recent years.
But the shares fell 3.3% or 72c to $20.63.
ORI YTD – Orica confirms plans to unload its chemicals business
The company said in a statement to the ASX that is has already received "a number of unsolicited enquiries from third parties expressing non-binding preliminary interest to acquire the chemicals division, and while a demerger remains its preferred approach it will look at these offers in more detail”.
The chemicals division has revenue of $1.2 billion from operations in Australia, New Zealand, Asia and Latin America.
Analysts think Orica could get from $900 to $1 billion for the business, but that will depend on the costs of lingering pollution questions. That was not mentioned in yesterday’s statement.
"Orica’s two businesses, Mining Services and Chemicals, are both market leaders in their respective industries and each business is exposed to different end markets, industry drivers and competitive dynamics," the company said in yesterday’s statement.
"A separation of the businesses would allow Orica to focus on its core Mining Services activities and capitalise on its global leadership positions in commercial explosives, ground support and sodium cyanide.
"Orica Chemicals is a leading supplier of chemical products to the mining, water treatment and other industrial, food and cosmetics markets in Australia, New Zealand with a growing presence in Asia and Latin America. Its annual revenue is approximately $1.2 billion.
"A demerger would create a separate ASX listing for the Chemicals business. It is expected that Orica Chemicals would benefit from the freedom to develop its own corporate strategy, capital structure and financial policies appropriate for the business as a separately listed entity.
"Orica has received a number of unsolicited enquiries from third parties expressing non- binding preliminary interest to acquire the Chemicals business.
"Whilst demerger is currently the preferred approach, Orica will consider any alternatives that are in the interests of shareholders.
"Orica will give a further update on the proposed separation at its full year results announcement on 19 November 2014," Orica said yesterday.
But there is the question of residual pollution problems at Botany in Sydney and in Newcastle at Kooragang Island where the company has major chemical plants.
Botany is the most serious and Orica has been unable to dispose of some rather nasty chemicals. Earlier this week the company was ordered to clean up arsenic in groundwater around the plant in Newcastle.
And again, earlier this week, the French government rejected Orica’s attempts to ship 132 tonnes of Hexachlorobenzene (HCB) from Botany to France for incineration.
Orica holds the world’s biggest stockpile of this highly toxic chemical which it can’t get rid of – some 15,000 tonnes – which is a by-product of the solvent manufacturing it ended more than 30 years ago.
Last week Orica was fined $750,000, for polluting houses around the Kooragang Island plant and for a pollution incident at Botany. These occurred in August and September 2011.
The question to be assessed if the company goes ahead with the spin off or sale is the level of indemnity for the new owners or shareholders (or if there is to be such protection).
