ZAT pushes on with plans to merge with fellow Polish chems firm ZAP

LONDON (ICIS)–Zaklady Azoty Tarnow (ZAT) is pushing ahead with plans to merge with fellow Polish chemical company Zaklady Azotowe Pulawy (ZAP) in a move that will create Europe’s third largest fertilizer producer with revenues exceeding zlotych (Zl) 10bn ($2.92bn, €2.39bn), ZAT said on Monday.

Analysts said plans for the merger, backed by Poland’s treasury ministry which controls both companies, are set to prevent a takeover bid by Russian mineral fertilizer producer Acron Group for ZAT and derail the offer from Polish synthetic rubber producer Synthos to buy ZAP.

ZAT intends to acquire control of ZAP in two stages; firstly by tendering for 32% of the company from 2 to 16 August, and secondly by using a share swap agreement to acquire the 60.1% of ZAP directly and indirectly controlled by the treasury ministry.

The price offered in the tender is Zl110/share, 7.3% above the Zl102.5/share offered by rival bidder Synthos, while the share swap would be conducted at a ratio of 2.5 ZAT shares per ZAP share, ZAT said.

“There is a declaration of treasury minister Mikolaj Budzanowski that the state will back the share call and participate in the exchange of shares,” said ZAT CEO Jerzy Marciniak.

“We will be sending the proposal to the European Commission,” he added, with regard to competition issues that could be raised by the merger in Poland, Europe’s third largest fertilizer market.

ZAT added that around Zl100m of immediate synergy savings and investment savings of Zl200m would result from the merger.

According to Prague-based investment bank WOOD & Company, the combination of ZAT and ZAP would be a “chemical megamerger”.

ZAP is a producer of fertilizers, melamine and caprolactam (capro). ZAT produces fertilizers, capro and polyamide 6 (nylon 6) and, in the past two years its product portfolio has been expanded with titanium dioxide (TiO2), oxo-alcohols and plasticizers, thanks to the treasury agreeing to use the company as a vehicle for a first wave of consolidation in the Polish chemical industry.

This consolidation saw ZAT take over controlling stakes in Zaklady Chemiczne Police (ZChP) and Zaklady Azotowe Kedzierzyn (ZAK).

“With a larger scale of operations, the company could benefit from greater pricing power in the European and domestic markets, and logistics synergies,” said Piotr Drozd, an analyst at WOOD & Company.

Together, ZAT and ZAP account for approximately 15%, or 2.2bn cubic metres, of Poland’s annual gas use, a fact that might give the merged entity greater gas price bargaining power, he added.

ZAT’s ammonia deficit could be balanced by ZAP’s ammonia surplus, Drozd said.

($1 = Zl3.42, €1 = Zl4.19)