Apollo’s Salt Play Speaks Well for Large Deals –

Apollo Management recently added some flavor to its portfolio by agreeing to acquire IMC Global Salt Inc. for $640 million, or approximately 5.2 times trailing EBITDA. The deal will allow Apollo Management to acquire the divested salt division of fertilizer company IMC Global and its Ogden, Utah, production facility.

Apollo Management had been looking for a good investment in the salt industry for several years, said Josh Harris, a senior partner at the firm. “[IMC Global Salt] is a very stable company,” he said. “It’s a slow and steady grower with a good solid track record of fairly consistent, albeit low- to mid-single digit growth.”

Harris added Apollo liked the management team and the fact that the salt business is not as cyclical as other industries.

Though some private equity players may be happy to see a big deal get done the average deal size for the third quarter was $87 million at least one firm isn’t happy. Chicago’s Madison Dearborn Partners is suing the seller, IMC Global Inc., for its “bad faith” in an earlier deal in which Madison Dearborn intended to take the salt business and Ogden facility for $565 million.

Madison Dearborn alleges that IMC Global intentionally delayed the transaction in order to shop around for another buyer and to pursue refinancing. The deal, which was nearing a definitive agreement, was called off on June 19, when Madison Dearborn would not renegotiate its purchase price, according to the firm’s complaint.

An IMC Global spokesman has publicly refuted the complaints. Apollo’s Harris would not comment on the lawsuit or any of its repercussions on the current deal.

Please Pass the Company

With the close of the deal, Apollo management will take 80% of IMC Global Salt, while its current owner will hold onto approximately 20% of the business. The transaction, which is expected to close by the end of the year, will be financed with a combination of equity from Apollo Fund V, bank debt from J.P. Morgan Chase and Deutsche Bank, and high-yield debt co-arranged by Credit Suisse First Boston and J.P. Morgan Chase. Harris said with the resilience of the company and the deal’s light leverage financing, the transaction is expected to go smoothly. “The leverage multiple is under four, and given the fact that the company is not very sensitive to economic cycles, we’re hopeful it will go well,” he said. “Indications are that people are interested.”

Considering that average deal size for the third quarter was $87 million, the size of this deal alone will be an impressive achievement for Apollo in the current market. It will be even more noteworthy if the deal does indeed close with junk debt, as high-yield issues came to a sudden and complete halt on Sept. 11, and have hardly picked back up.

Moving forward, Apollo plans to let management continue the company’s slow and steady growth. For the 12 months ended June 30, 2001, revenue and EBITDA for the salt and Ogden businesses were approximately $515 million and $125 million, respectively.

Harris said Apollo plans to bring more cash flow to the business and reduce debt. “There are also small acquisitions to be done in the industry,” he said.

IMC Global, the world’s largest producer of phosphates and potash fertilizers, released its plan to sell its salt division and the Ogden facility in February 2000 and classified them as discontinued operations on Dec. 31. The company plans to use the proceeds to reduce debt, strengthen its balance sheet and fully meet its 2002 debt maturity obligations, said Douglas Pertz, the president and chief executive of IMC Global, in a statement.

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