AV Birla set to buy US firm for $900 million

The Aditya Birla Group is in acquisition mode again. It appears set to acquire US carbon black manufacturer Columbian Chemicals.

According to two independent sources, negotiations are at the last stages, and a deal is expected to be announced next week. The size of the deal, said these sources, is expected to be around $900 million (Rs 4,100 crore).

"The exclusive diligence is almost over. Finance for the deal is also expected to be tied up shortly," said a person familiar with the negotiations.

The top management team from Aditya Birla's carbon black division is believed to be in the US finalising the diligence exercise at Columbian.

When contacted, an Aditya Birla Group spokesperson said, "As a policy, the group does not comment on market speculation."

Santrupt Mishra, CEO of the carbon black business of the Aditya Birla Group, denied any such move by the company. "There is no substance to these rumours, which have been around for some time now."

Columbian Chemicals did not respond to any queries.

Sources, however, said Aditya Birla Group officials are also in talks with several banks to tie up acquisition funds.

They include Deutsche Bank, Royal Bank of Scotland and other foreign banks. JP Morgan is advisor to the deal.

It is still unclear whether the deal will be financed mainly on group firm Aditya Birla Nuvo's books or by overseas carbon black divisions like Alexandria Carbon Black Company.

According to Standard & Poor's, Columbian is the world's third-largest carbon black manufacturer after Cabot and Evonik.

The closely-held company has around 9 per cent global marketshare. According to speciality chemicals consulting firm Notch Consulting, Evonik and Columbian Chemicals together controlled 20 per cent of the 12.7-million tonne per annum (tpa) global carbon black capacity in 2009.

The acquisition, therefore, will consolidate Aditya Birla's position among the world's top carbon black producers.

Evonik's carbon black division has also been put on the block after it was identified by the company as a non-core unit.

The Aditya Birla Group has also looked at Evonik, but sources said Columbian was preferred.

Carbon black is a key ingredient to create the blackness in tyres, printing inks, toners, paints and conveyor belts.

Headquartered in Marietta, Georgia, Columbian Chemicals operates 16 plants in nine countries, including the US, Canada, Brazil, Germany, Spain, South Korea and China, employing 1,300 people.

Last year, One Equity Partners, the buyout arm of JP Morgan Chase, managing $8 billion in PE investments, decided to initiate the sell-off process.

In 2006, DC Chemical, a South Korean maker of petrochemicals and solar power components, and One Equity Partners jointly bought Columbian for about $600 million from Phels Dodge.

In January 2009, One Equity agreed to buy DC Chemical's entire stake for around $150 million.

For the Aditya Birla Group, carbon black is a strategic area for growth. Hi Tech Carbon, the carbon black business of AB Nuvo, caters principally to the domestic market and has a 37 per cent share.

It has two manufacturing facilities, in Renukoot in Uttar Pradesh and Gummidipoondi in Tamil Nadu. Their combined capacity stands at 300,000 tpa, including a recent greenfield capacity expansion at Patalganga.

The company is one of the lowest cost producers of carbon black in India. The group also has international operations in three key emerging markets.

The group aims to produce 1 million tpa by 2012. The Aditya Birla Group produces 780,000 tpa of carbon black, making it the world's fourth-largest producer of carbon black.

For the year ended March 2010, the carbon black division of the Aditya Birla group posted revenues of Rs 1,160.87 crore and profit before interest and tax of Rs 227.33 crore.