OMV to Sell Fertilizer Unit at Deep Discount as Gas Surges

(Bloomberg) -- OMV AG, Austria's biggest fossil fuel company, agreed to sell a key fertilizer business after skyrocketing energy prices cut the unit's value.

EuroChem Group AG, the Russian fertilizer maker controlled by billionaire Andrey Melnichenko, bid 455 million euros ($514 million) for the Borealis nitrogen unit, according to a statement from the Vienna-based company on Thursday. When OMV began exploring a possible sale three years ago, some estimates pegged its value as high as $1 billion.

“We saw very high gas prices and that weighed on the results,” OMV Chief Executive Officer Alfred Stern said in an interview with Bloomberg News. “But for us, it was a clear strategic decision. We want to focus on developing out other chemicals.”

What Bloomberg Intelligence Says
“The 455 million-euro offer for OMV's fertilizer unit may be lower than previous estimates -- largely driven by higher energy costs weighing on the valuation -- but the sale is still sensible, given the company's strategic position to focus on other high-value chemicals. Another strong quarter of cash generation for OMV amid favorable macro conditions has allowed the company to announce dividends of 2.3 euros -- above our expectations -- which may further boost positive sentiment.” -- Salih Yilmaz, BI global energy analyst

What Bloomberg Intelligence Says

“The 455 million-euro offer for OMV's fertilizer unit may be lower than previous estimates -- largely driven by higher energy costs weighing on the valuation -- but the sale is still sensible, given the company's strategic position to focus on other high-value chemicals. Another strong quarter of cash generation for OMV amid favorable macro conditions has allowed the company to announce dividends of 2.3 euros -- above our expectations -- which may further boost positive sentiment.” -- Salih Yilmaz, BI global energy analyst

OMV shares fell the most in a week, and were trading 3.3% lower at 53 euros at share at 11:29 a.m. Vienna time. The company's market value has surged 50% over the last year, outpacing Bloomberg's European Energy Index.

OMV Takes $2 Billion Impairment on Refining, Fertilizer Units

The divestment was part of a broader 2-billion euro program that was announced in 2020, when natural gas prices were trading below 20 euros a megawatt hour. Europe's energy-supply crunch has seen the region's costs surge to record levels in recent months, forcing some fertilizer and chemical makers to curtail production.

OMV expects Europe's gas prices to remain high through 2022, supported by the continent's historically low storage levels. While inventories are sufficient to cover heating demands this season, markets “should expect the situation to remain tight,” said Stern.

The CEO dismissed concerns over the security of Russian gas deliveries to Europe, saying Moscow has been a reliable supplier to Austria for more than half a century. “Contracts have always been observed,” he said.

Europe Faces Harsh Reality of Finding Russian Gas Irreplaceable

OMV is now revising its strategy and said it will present a fresh outlook during the first quarter of 2022. Stern, who took the company's helm at the end of last year, wants to pivot toward production of higher value chemicals in line with Austrian goals to mitigate climate change.

Earlier Thursday, the company reported fourth-quarter net income that beat analyst estimates. It's planning to pay a dividend of 2.30 euros on last year's results.