Orica Ltd (ORI) shares are stuck in a trading halt

Companies and indices mentioned:

The Orica Ltd (ASX:ORI) share price was stuck in a trading halt today following news of a capital raising and acquisition.

For context, the broader Australian share market or S&P/ASX 200 (ASX: XJO) was trading at 7119.2, up 0.08%.

About Orica Ltd

Orica is one of the world’s largest providers of commercial explosives and blasting systems. It supplies its products to various industries including mining, quarrying and oil & gas. It is also a large supplier of sodium cyanide for gold extraction and it provides ground support for mining and tunnelling. It has been operating since 1874, operates in over 100 countries and has around 11,500 employees.

Trading halt’s explained

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Orica to buy Exsa

Today, Orica announced it will acquire Peru’s leading manufacturer and distributor of industrial explosives, Exsa. Orica says the deal will give it a leading position in the Latin American Market, a market expected to grow at 4% annually until 2025.Orica will pay a price of $US203 million ($302 million), which represents a valuation multiple of EBITDA of 14x.

To get the money and make the acquisition Orica shares have entered a trading halt as they prepare to sell an additional $500 million of shares to institutions and raise $100 million from smaller — but loyal — investors.

The extra capital will, according to the company, provide greater balance sheet flexibility and support growth initiatives.

Obviously, questions have to be asked by loyal shareholders as to why they were not offered a fully underwritten, renounceable rights issue, which is — by far — the fairest way to treat all shareholders, large and small.

“We are very pleased to announce the acquisition of Exsa, which will immediately establish Orica as the number one player in Peru, Latin America’s highest growth market, and transform Orica’s entire Initiating Systems footprint,” CEO Alberto Calderon said.

“Exsa’s world class Initiating Systems facility integrates the manufacture of almost every component of a detonator on site, providing meaningful and tangible synergies upon integration into the Orica network, with the ability to take advantage of significantly underutilised manufacturing capabilities.”

What happens next?

Orica shares are expected to come out of their trading halt on February 20th, and investors can participate in the SPP between Feb 26th and March 17th.

Orica shares were last seen trading at $22.31, giving the company a market capitalisation more than $8 billion.

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Owen Raszkiewicz

Owen Raszkiewicz

Owen is the Founder of Rask Australia, Lead Investment Analyst for Rask Invest, Head Educator at Rask Education, and Chief Banana peeler for two rabbits.