Orica share price in the freezer amid acquisition and $650m cap raise

a man peers out from a high collared jacket with just his eyes and nose visible amid a swirling snowstorm.a man peers out from a high collared jacket with just his eyes and nose visible amid a swirling snowstorm.

The Orica Ltd (ASX: ORI) share price is frozen as the company undergoes a capital raise to fund an acquisition worth as much as $350 million.

The Orica share price is halted at $17.20 at the time of writing.

It will remain that way until the company announces the completion of a $650 million placement or the market opens tomorrow.

Let’s take a closer look at what’s going on with the S&P/ASX 200 Index (ASX: XJO) materials company today.

Orica share price frozen amid acquisition cap raise

The Orica share price is in the freezer after the commercial blasting systems provider announced it’s undergoing a $650 million placement and a share purchase plan worth up to $75 million to fund a major acquisition.

The ASX 200 company is snapping up Axis Mining Technology in a deal worth as much as $350 million.

Axis designs and manufactures specialised geospatial tools for the mining industry, making most of its money through reoccurring product rentals. It boasts a vertically integrated, scalable business with low capital intensity and attractive margins.

Orica believes the business will be a valuable addition to its digital solutions platform. It’s also expected to position it to become the industry’s first integrated, end-to-end, mine-to-mill solutions provider.

Orica will pay $260 million in cash to buy Axis.

The deal implies an acquisition multiple of 11.8 times financial year 2022 earnings before interest, tax, depreciation, and amortisation (EBITDA), excluding pro forma synergies.

It may also fork out another $90 million in earn-out payments. Those payments are subject to financial performance and certain key management remaining.

And in other Orica news today, the company also provided an update on its guidance.

Orica’s earnings outlook for the 2022 financial year remains unchanged. However, it noted inflation, high energy costs, and supply chain issues will remain a challenge in financial year 2023.

Placement details

The $650 million placement will see new shares in Orica offered for $16 per share. That represents a 7% discount to the company’s last trading price.

The share purchase plan offers shares for the placement price or a 2% discount to Orica shares’ five-day volume weighted average price, whichever is lower.

The money raised will also fund incremental trade working capital requirements arising from global supply chain dislocations and strengthen the company’s balance sheet.

Orica expects the acquisition and placement to be earnings per share (EPS) accretive from the first full year of ownership. The return on net assets contribution from the acquisition is expected to be between 10% and 12%.

What did management say?

Orica managing director and CEO Sanjeev Gandhi commented on today’s news, saying:

I believe that Axis’ differentiated geospatial tools and instruments, combined with our existing suite of digital solutions will provide compelling orebody intelligence to customers and support the delivery of the industry’s first end-to-end solutions platform, from mine to mill.

The post Orica share price in the freezer amid acquisition and $650m cap raise appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of July 7 2022

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#43B02A”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43B02A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/WQt8FDZ

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s