The Incitec Pivot Ltd (ASX: IPL) share price is having a strong session.
In morning trade, the ASX 200 industrial chemicals company's shares were up almost 7% to $3.33.
The Incitec Pivot share price has since pulled back a touch but remains up over 3% currently.
Image source: Getty Images
Why is this ASX 200 share charging higher?
Investors have been buying the company's shares on Tuesday in response to the release of an announcement after the market close yesterday.
According to the release, the company has reached an agreement with CF Industries for the sale of its ammonia manufacturing facility located in Waggaman, United States.
The two parties have agreed a deal with a total value of US$1.675 billion (A$2.50 billion). This includes a 25-year ammonia supply agreement with CF Industries for up to 200,000 short tonnes of ammonia per annum to support Incitec Pivot's Dyno Nobel Americas (DNA) explosives business.
Management also highlights that the supply agreement secures ammonia at producer cost for the DNA business. The value allocated to the ammonia supply agreement is approximately US$425 million (A$634 million) which will be offset from the cash proceeds of the sale agreement for Waggaman.
All in all, after tax and the ammonia offtake agreement, the company expects to bank US$837 million (A$1,249 million) in net cash proceeds. These proceeds are intended to be allocated in line with the company's previously disclosed capital allocation framework.
Though, the deal remains subject to US anti-trust regulatory clearance and the completion of other customary closing conditions.
Why is it selling Waggaman?
Management advised that it decided to sell the Waggaman operation in response to a strategic review.
Incitec Pivot's managing director and CEO, Jeanne Johns, added:
Our announcement today represents a pivotal step in the execution of our strategy to enhance the focus of our businesses on the high value technical and service needs of our explosives customers. We are also delighted to be partnering with CF Industries, a world class producer of ammonia with an excellent manufacturing and safety track record. We are looking forward to this journey as we seek to deliver long-term sustainable value creation for our shareholders and stakeholders.
