Compass Mineral – The Wolf Trax Acquisitionon Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Problem Identification:

The salt production and sales are based on the weather circumstances. In the previous years, the sales and profitability of the sales sector were lower than expected, just due to the harshness of the weather. In 2011, a tornado hits the area that was in the process of salt mining, resulting in a substantially lower salt production. The fertilizer segment was subdivided in 2 main ingredients produced by the company: potassium chloride and sulfate of potash. In 2013, a Russian competitor Uralkali declared that they will no longer limit the potash production, the action induced the market with great uncertainty over the possible drastic fall in the prices of fertilizers and that it was ending a joint venture with a mining firm of Belarus and resulted in much lower spot prices for MOP. Although Compass produces SOP, not MOP, and most of the business are in the United States, the uncertainty affected SOP sales in the third quarter of 2013 and the price of Compass stock dropped. This situation created problems for the Compass Minerals and they approach to a privately owned company Wolf Trax for synergies, with an agreed price of $85 million. Now the company is concerned about the feasibility of the deal.

Result:

Based on our computation, reasoning, assumptions, professional judgments and subject to the authenticity of the estimated figures by Candice, we believed that the acquisition of Wolf Trax at this stage of the time, will prove positive for the company, as the base case will be generating positive cash flows along with positive Net Present Value.

Recommendation:

Based on our calculations and workings. We recommend that the initiation of the project will be highly appreciated, since the project will produce positive cash flows and positive NPVs in all 3 scenarios i.e. base, best and worst scenarios.

OVERVIEW:

Compass Minerals were one of the leaders in the business of different minerals and located in the Park of Overland in the city of Kansas. It was found in 1844 and became a public limited company about 10 years ago. In the era of the 90s, Compass Minerals was a division in a large mineral producing company IMC Global. In 2001, a private equity firm named Apollo Management VLP, approached to the IMC Global and requested to buy around 81% of Compass Minerals business through an LBO transaction, and leaving IMC Global to keep only the remaining 19% stake of Compass Minerals. In 2003, after that the Compass Minerals became public, the VLP asked the Compass to conduct an initial public offering. Initially, 16,675,000 shares were sold to the public at a price of $13.00 per share. On the same side, Compass paid a large dividend to the private equity firm and to IMC Global prior to the IPO. Since, the Compass started its business as the public listed company with huge amounts of debts and negative shareholdings, it paid a good amount in term of dividends, but after that the company has started to perform in the market and has improved its financial position.

After a recent decline in the production and profitability in the business of Salt and specialty fertilizers, Compass Minerals wanted to acquire Wolf Trax, a privately owned fertilizer company of Canada. The acquirer was involved in the business of micronutrient fertilizers, an essential nutrient for minerals that are essential for plant growth. They were producing calcium, iron, copper, boron, magnesium, zinc and manganese. The owners realize that to reach the next level of growth and profitability will raise substantial capital. Wolf Trax may offer the Compass an opportunity to move its fertilizers from commodity type pricing to value added pricing. Both the companies agreed on a price of $85 million. Now the company is concerned about the feasibility of the deal.

STATEMENT OF THE PROBLEM:

The production of salt and its sales highly depend upon the weather conditions. In the last few years, the sales sector had not been up to mark regarding its sales and profitability which was due to the harsh conditions of weather. In the year 2011, a tornado had strike an area of salt mining. It had heavily affected the mine that caused lower salt production. The two main products produced by the company: potassium chloride and sulfate of potash, were the ingredients from the fertilizer segment. In the year 2013, Uralkali, a Russian competitor stated that there will be no limitation in the production of potash, this statement caused uncertainty.....................

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