Synthos may follow up ZAP bid with Ciech offer – bank

19 June 2012 12:03  [Source: ICIS news]

LONDON (ICIS)--Synthoss bid for fellow Polish producer Zaklady Azotowe Pulawy (ZAP) looks like the first move in a strategy to build a large-scale, diversified chemicals business, an investment bank said on Tuesday.

The zlotych (Zl) 1.96bn ($576m, €459m) offer for 100% of ZAP and “Synthos consolidation-oriented strategy also increases the probability of a tender for [another large state-controlled chemical producer] Ciech,” said Piotr Drozd, an analyst at Prague-based WOOD & Company.

Together, Synthos, ZAP and Ciech would have annual revenues of approximately Zl 12bn, according to the companiesfigures.

If they became part of one group, Synthos, Europes second largest producer of synthetic rubber, would be linking up with ZAP, a major nitrogen fertilizer, caprolactam (capro) and melamine maker, and Ciech, Europes second largest producer of soda ash and a manufacturer of toluene di-isocyanate (TDI).

Weighing up the likelihood of Synthos following up its offer for ZAP with a bid for Ciech, Drozd added that the bank believed “the fact that Ciechs current [and newly appointed] CEO, Dariusz Krawczyk, previously served as the CEO of Synthos is important to remember”.

Synthos’s bid for ZAP, which comprises a share call with a deadline of 7 August, was likely to be accepted by the Polish treasury ministry, which holds a 50.67% stake in the company, WOOD & Company said.

“The offer constitutes a very convenient divestment option from the state treasury’s perspective,” Drozd added.

The price offered seems acceptable considering ZAPs expected negative earnings momentum due to gas price hikes and weakening fertilizer prices, while Synthos does not carry with it any political risks, as is the case with the bid of Russian mineral fertilizer producer Acron Group for control of Polish chemical group ZAT, he said.

“Alternative bidders for a 100% stake in ZAP may be difficult to find due to its large exposure to Polish gas market regulations,” Drozd also noted.

From a strategic standpoint, Drozd said the bank saw the possible transaction mainly as a diversification of Synthos’s revenue stream and anticipated “some potential for synergies in the chemicals segment, namely logistics and marketing in the plastics and plastics derivatives business and raw material sourcing”.

Synthos said it intended to finance its takeover of ZAP with funds from a Zl 2bn credit facility arranged with Polish bank PKO Bank Polski, although its balance sheet at the end of the first quarter showed it held Zl 1.15bn of cash.

ZAP said it was not yet ready to state its opinion in regard to the Synthos bid, although the treasury ministry has already signalled it believes it is worthy of serious consideration.

Poland’s BRE bank pointed out that the share call would take place during the period when world grain price information would determine the new outlook for the fertilizer market.

If grain prices were high then the pricing of Synthos’s bid might not look particularly attractive, but if they fell, the opposite might be the case, it said.

($1 = €0.79, $1 = Zl 3.40, €1 = Zl 4.27)

By: Will Conroy
+44 20 8652 3214

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