Tata Chem arm acquires UK's British Salt for Rs 650 crore

Marks group's next round of acquisitions in that country

BY Lalatendu Mishra
Kolkata

The Tata group has added to its massive investments in UK, after the Corus, Jaguar and Land Rover (JLR) deals

Further expanding its presence in the UK, the Tata group has acquired a British salt company for Rs 650 crore. Tata Chemicals Ltd on Monday announced that its wholly owned subsidiary Brunner Mond, UK, has signed a binding agreement with a clutch of private equity investors to acquire a 100 per cent stake of British Salt Ltd. The latter enjoys a 50 per cent market share in the UK. Brunner Mond is a global manufacturer and supplier of soda ash, sodium bicarbonate and other alkaline products.

With this deal, the Tata group has added to its massive investments in UK, after the Corus, Jaguar and Land Rover (JLR) deals. Monday's deal, estimated at £93 million (over Rs 650 crore), has been structured through Tata Chemicals Europe Holdings Ltd and is expected to close within 30 days. An analyst said a binding agreement is as good as acquiring the company, and the acquirer will now only get regulatory approval to take over British Salt.

As per the agreement, an amount of £90 million would be paid immediately, while the remaining £3 million would be paid after three years, subject to meeting certain performance targets.

The acquisition is entirely debt-funded on a non-recourse basis to Tata Chemicals. Brunner Mond would recover the investment in five years, company officials said.

"We are taking over a zero-debt and zero-cash company.

The debt has been raised purely on the balance sheet of Brunner Mond. This will have no impact on Tata Chemicals' balance sheet," said R Mukundan, managing director, Tata Chemicals.

"The acquisition is in line with Tata Chemicals' strategy to deepen its presence in the food and farm sectors and will result in securing raw material for Brunner Mond operations. This acquisition is a backward integration for Brunner Mond because it needs salt to produce soda ash," Mukundan added.

He said that the synergy between Brunner Mond and British Salt would yield a benefit of £2 million per year, which augurs well for what is is already a cash-generating business.

British Salt owns brine wells in the UK with a residual life of 50 years. Most of the salt produced by the company goes as unbranded salt to food processing companies. In the UK, households are not major salt consumers.

Unlike in India, salt in Britain is mined from underground and the cavity created from such mining operations gets leased out to energy companies who use these as storage facilities for gas. After five years, the Tatas expect to lease out such cavities and are expected to have one-time lease rental income of £45 million.

Besides the core business of salt-making, British Salt is also active in the gas storage business and has a potential to generate additional cash flows. British Salt operates an efficient manufacturing facility at Middlewich, Cheshire, with a capacity to produce 720,000 tonnes of salt annually. The Tatas have no immediately plans to upgrade this.

Unlike in the case of Corus and JLR, there is no pension fund-related problem in British Salt and the Tatas believe that this acquisition would substantially support the operations of Brunner Mond that has operations in UK, Kenya and South Africa.

Following the announcement of the deal, the Tata Chemicals scrip closed with a minor gain of 0.12 per cent at Rs 371.60 on the Bombay Stock Exchange, whose benchmark Sensex index closed flat with an identical gain of 0.12 per cent.