Tata Chemicals bought British Salt

A UK based white salt producing company for about US $ 13 billion. The acquisition gives Tata access to very strong brine supplies and also access to British Salts facilities as it produces about 800,000 tons of pure white salt every year

Background: All soda ash manufacturers have ownership of their key raw material tronaor salt deposits This was the case for Brunner Mond (BM) until 1991 when it was divested from ICI the salt deposits are now owned by Ineos This highly unusual position has been made tenable by the existence of a 25 year contract made as part of the divestment It has been recognized for some time that BM needs to restore the umbilical to its key raw material The existing contract with Ineos is set to expire in 2016 Due to the consolidated nature of salt (Brine) industry, BM is at a disadvantage to negotiate a similar long term contract with Ineos In case of contract renewal with Ineos, it is expected that BMs sourcing cost for brine would increase substantially British Salt is the only other producer of Brine in UK

Cost of acquisition: US $ 13 billion (93 million ie about Rs 650 crore) Year: 20th December 2010 Steps involved in the process :
1. The acquisition gives Tata access to very strong brine supplies and also access to British Salts facilities as it produces about 800,000 tons of pure white salt every year 2. British Salt has been valued at 93 m (approx. 6x EBITDA) 3. BM to have 100% equity ownership of BS 4. The deal is entirely debt financed on a non recourse basis to Tata Chemicals

Valuation of the companies and the deal : Tata Chemicals: $22 billion (16.5 billion) [as on 31st March 2010 ] British Salt: 42 million (47 million) *as on 31 December 2009+

Impact after the deal :Strategic benefits from acquisition Provides secure, cost-effective brine supply Maintains and enhances BMs low cost position within Europe Generates substantial and consistent cash flows from the highly profitable and non cyclical vacuum salt business Generates additional cash flows from operational synergies between British salt and BM Unique opportunity to generate large cash flows from gas storage business

Financial Impact Impact on BM UK Maintenance of sourcing costs at current levels which would not have been possible without this deal Increased EBITDA of 15m per year from vacuum salt business Synergies between BM and British Salt to result in EBITDA improvement of 2m per year Increased cash of 45m from lease of cavities for gas storage after 5 years BSs defined benefit pension in small surplus on FRS17 basis and closed to future accrual

Impact on TCL Post acquisition, TCL comfortably placed in view of existing debt covenants on a consolidated basis

Description on the target company and the acquirer company

Tata Chemicals In 1980, Tata Chemicals set up a non-governmental organisation Tata Chemicals Society for Rural Development (TCSRD) that works towards holistic community development, including managing water, land and other natural resources, encouraging enterprise development, and promoting health and education Tata Chemicals Europe (formerly Brunner Mond) is a major sponsor of the Lion Salt Works Trust, a local heritage project in Cheshire, UK and of the Weaver Valley Initiative, part of the path-breaking Mersey River clean up campaign. In Kenya, Tata Chemicals

Magadi supports local health care facilities and works to provide education, water and employment opportunities. Tata Chemicals is also involved in efforts to preserve the biodiversity of land along the Gujarat coastline and the nesting sites of migratory birds. TCL and Wildlife Trust of India (WTI) have signed an MoU for a conservation project that will create awareness and undertake research to save the endangered species of whale shark that visits the coastal shores of Gujarat.

British Salt (BS) 1. British Salt, established in the 1920s is located in Middlewich, UK 2. Products from BS stable are: Brine Un-dried vacuum salt Pure dried vacuum salt Compact vacuum salt

3. BS currently produces 390 ktes of vacuum salt per year and is the leader in UK evaporated salt market Salt reserves of BS can serve UK requirement for up to ~50 years BS has developed long standing relationships with leading companies in food, Industrial and Chemicals sectors in UK Its customer relationship with key customers extends up to 30 years In the recent years, BS has successfully developed gas storage opportunities from brine cavities

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Conclusion
There is no horizontal overlap between the products manufactured by Brunner Mond and British Salt. The parties products are not substitutable and are different both chemically and functionally. The parties informed the Authority that although sodium bicarbonate (manufactured by Brunner Mond) and PDV (manufactured by British Salt) can be used in the manufacture of animal feed, these compounds are chemically different and required by animals for different reasons.The parties informed the Authority that a deficiency in sodium bicarbonate cannot be made up by increasing the intake of PDV salt. The proposed acquisition does not raise any vertical competition issues. In light of the above, the Authority considers that the proposed acquisition will not raise any competition concerns in the State.