Zaklady Azotowe Tarnow 'to be largest fertilizer group in Poland'

08 November 2010 16:31  [Source: ICIS news]

PRAGUE (ICIS)--Zaklady Azotowe Tarnow's (ZAT's) upcoming purchase of a controlling stake in Zaklady Azotowe Kedzierzyn (ZAK) will create the largest fertilizer group in Poland, with annual sales of around zlotych (Zl) 3bn ($1.1bn, €0.8bn), Citigroup said on Monday.

"The deal will create the largest fertilizer company in Poland [with] a dominant position in ammonium sulphate and a strong position in ammonium nitrate. The company will be a dominant player in southern Poland, with the likely ability to dictate prices,“ the financial services group added.

The acquisition would generate substantial synergies in the companies' fertilizer divisions, something which Citigroup said was a key factor in it deciding to make ZAT its new "top pick" among Polish chemical companies.

Citigroup also raised its rating of ZAT stock from Hold/Medium Risk to Buy/Medium Risk.

Currently, Poland's largest fertilizer is Zaklady Azotowe Pulawy (ZAP), which Citigroup estimated would have sales of around Zl 2.5bn in 2010.

Citgroup also said that the Zl 150m which ZAT is set to pay for 53% of ZAK "was not demanding, with a normalised EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] ratio at 4.0-4.5x, at the lower end of the range of market valuations".

Citgroup identified a number of cost synergies in the combination of ZAT and ZAK, and said ZAK had a well-developed ammonia installation and a new nitric acid plant, both of which ZAT could benefit from.

Citigroup said ZAT also produces caprolactam and was experiencing strong demand for another of its products, polymers.

The deal, however, "carries some risks [for a ZAK product], oxo-alcohols, which represent some 50% of ZAK's sales but is not a core business of ZAT", it added. "ZAT itself has admitted it is not a business area where synergies could be seen between the two companies," Citigroup said.

In February, the ZAT group expanded with the acquisition of insolvent German polyamide 6 producer Unylon Polymers (subsequently renamed ATT Polymers). It is also mulling a bid for Polish phosphorus fertilizer company Fosfory Ciech.

The Polish treasury ministry says if the consolidation of ZAT and ZAK is successful, the privatisation of the two companies could be restarted next year.

($1 = Zl 2.79, €1 = Zl 3.91)

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By: Will Conroy
+44 20 8652 3214



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