Blackstone agrees $653m carve-out of Orica's chemicals business

The divestment comes after a strategic review by Orica found that the company would be best served operating solely as a mining business. It also coincides with uncertainty in global resources markets, with Orica planning to cut more jobs and saying it is difficult to provide profit guidance for the year ahead.

This is Blackstone's first buyout in Australia, after losing out on poultry producer Inghams Enterprises last year. The PE firm is already active in the country in other areas - notably real estate, having picked up Valad Property Group in 2011 and acquired assets from several other developers.

Orica's general chemicals division comprises trading businesses in Australia, New Zealand and Latin America, as well as a chloralkali manufacturing operation in Australia. Its customers span agriculture, construction, food and beverages, pharmaceuticals, plastics, pulp and paper and water treatment. The division also includes Bronson & Jacobs, a supplier to food and personal care products manufacturers.

The sale price fell short of analyst estimates of as much as A$1 billion, Reuters reported.

"Orica is a world class company and we are excited about investing in its market-leading chemicals business," James Carnegie, senior managing director and head of Australian private equity at Blackstone, said in a statement. "Orica Chemicals is strongly positioned and we look forward to continuing its best-in-class standards of safety and service."

Orica is the world's largest provider of commercial explosives to the mining and infrastructure sectors, with a 28% market share. It is the leading supplier of cyanide used in gold extraction as well as providing ground support for mining and tunneling and producing chemicals used across multiple sectors. The company's mining chemicals operations are a separate division from the general chemicals business.

Group net profit for the year ended September 2014 came to A$602.5 million, up 1.7% year-on-year, while EBIT dropped 4% to A$929.7 million. Revenues fell 1% to $6.8 billion. Mining services account for 93% of EBIT, with chemicals contributing 7%. The chemicals EBIT contribution was A$67 million, down 29% year-on-year, largely due to expenses tied to restructuring the business in Latin America.

Orica has cut more than 1,300 jobs in the past two years and expects to reduce headcount by 700 in 2015 as part of a cost-cutting and efficiency drive. The company said it does not expect a significant improvement in the global resources markets, which reinforces the need for transformation objectives to be achieved.

The transaction, which is expected to close in the first quarter of 2015, is subject to approval from the Australian Foreign Investment Review Board and the New Zealand Overseas Investment Office. As part of the deal, Orica will retain responsibility for the chemicals division's legacy environmental obligations.

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