Mumbai: In a move that will make the Aditya Birla Group the world’s largest carbon black maker by volume, the $30 billion (Rs 1.4 trillion) diversified conglomerate—which makes aluminium to cement—on Monday said it proposed to acquire US-based 100-year-old carbon black maker Columbian Chemicals Co. (CCC) for $875 million from One Equity Partners, an arm of JPMorgan Chase and Co.
Carbon black is the key raw material for making tyres.
Marietta, Georgia-based CCC is a global provider of carbon black additives for rubber, plastic and liquid products.
The world’s fourth largest carbon black maker before the acquisition, with an annual capacity of 900,000 tonnes, the Aditya Birla Group has three companies in Egypt, Thailand and China supplying to one-third of the global market.
Its Indian outfit, Hi Tech Carbon, sells carbon black under the brand Birla Carbon.
“The acquisition will help us become a dominant global player which can sell the product in Northern America and some parts of Europe through CCC’s global franchises,” group chairman Kumar Mangalam Birla said.
The buy will also help the group adhere to the stringent quality requirements of global tyre companies and can feed 20% of the global demand expected in 2011 at 10.3 million tonnes (mt), he added.
The group will buy CCC through Alexandria Carbon Black Co. SAE, Thai Carbon Black Public Co. Ltd and another group firm, SK Investment Ltd.
Its associate firms in Egypt and Thailand will own 21% stake each and rest will be held by SK Investment.
Started by the late founder Aditya Vikram Birla in 1980s with Thai Carbon and later Alexandria Carbon, the group has been expanding its global footprint of carbon black under the current chairman.
It bought out the partner’s stake in China Liaoning Birla Carbon in China from a state-owned company in 2010 and a fortnight ago, it purchased the Egyptian government’s stake from the joint venture in Egypt, before the political unrest started against the Hosni Mubarak government.
Foreign Banks ANZ Banking Group Ltd, Bank of America Corp., HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Standard Chartered Plc will lend money for the acquisition.
“Around $450 million debt will be raised on CCC’s balance sheet and the rest will come from Alexandria Carbon and Thai Carbon,” Santrupt B. Mishra, chief executive (carbon black business) of Aditya Birla Group said.
According to him, loans are being raised at 220-240 basis points over London interbank offered rate (Libor). One basis point is one-hundredth of a percentage point. Three-month Libor is currently at 0.304%.
The group is paying a little more than six times of CCC’s earnings before interest, tax, depreciation and amortization or operating profit of $140 million, according to company officials.
Going by the preliminary data filed under US accounting system for calendar year 2010, CCC had declared a net income of $17.37 million, a 48.10% increase over its net income in 2009. Its total debt stood at $771.58 million.
“It was an expected acquisition as margins are linked to global economy,” said Subramaniam Ramanathan, vice-president at consulting firm Avalon Global.
The CCC offer will give the Aditya Birla Group better purchasing power to buy carbon black feedstock, a waste by-product from refining crude, save logistics costs and tap newer markets in North America, he added.
The overseas acquisition gains significance as the US automobile market has turned around and firms such as General Motors Co. and Ford Motor Co. sold more cars last year. In 2010, car sales rose by 11% in the US and 33% in China, but were down in Western Europe, according to auto researcher JD Power and Associates.
At 1.4 mt a year, the European carbon black market has been growing at 1%, while the Asian market is growing at 5%, according to the Aditya Birla Group website.
Subramaniam of Avalon said the group will look at similar acquisitions in companies in Europe.
According to a Mumbai-based senior consultant, the acquisition gives the company access to the latest production technologies in addition to scale. “The growing auto market should also add to their potential demand significantly,” he added. He did not want to be named as his firm advises Aditya Birla Group companies.
The company had earlier looked at Evonik Industries AG of Germany for a possible buyout.