Compass Minerals International, Inc.

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Compass Minerals International, Inc.

9900 W. 109th Street
Suite 600
Overland Park, Kansas 66210
U.S.A.
Telephone: (913) 344-9200
Fax: (913) 338-7928
Web site: http://www.compassminerals.com

Public Company
Incorporated: 2001 as Salt Holdings Corporation
Employees: 1,541
Sales: $742.3 million (2005)
Stock Exchanges: New York
Ticker Symbol: CMP
NAIC: 212399 All Other Nonmetallic Mineral Mining

Compass Minerals International, Inc. is a major producer of rock salt and evaporated salt, used for highway deicing, consumer deicing, water conditioning, and food preparation; and sulfate of potash (SOP), used to make specialty fertilizer. Compass products are sold in North America, which accounts for 85 percent of revenues, and Europe, where the United Kingdom is the dominant market generating 13 percent of Compass revenues. Although a low-margin item, highway deicing salt is the company's most important product, generating nearly half of all revenues and representing three-quarters of all products shipped. Compass is composed of three subsidiaries devoted to the production and marketing of salt and one to the production and manufacture of SOP. A public company listed on the NASDAQ, Compass maintains its headquarters in Overland Park, Kansas. Some of its mines have been in operation since the mid-1800s.

COMPANY ROOTS DATING TO 1988

The bulk of Compass's assets were cobbled together by D. George Harris and his partners starting in the late 1980s. An Army brat, Harris attended high school in the 1940s in Beijing, where his father taught military strategy to calvary officers before the revolution when China became a Communist country. Harris graduated from Culver Military Academy and then earned a degree in chemical engineering from the University of Missouri at Columbia in 1954, at which point he served in the U.S. Army for a two-year stint. Harris then put his chemical engineering to use in building a business career. By 1966 he became International Sales Manager at Calgon Corporation, and later served as managing director for Chemviron S.A., Brussels; chief executive officer for Rhone-Poulenc's U.S. operations until the French company was nationalized in 1981; president of the chemical division of SCM Corp., and then president and chief operating officer at SCM. In 1986, Hanson Industries of the United Kingdom completed a successful hostile takeover of SCM. Although Harris could have stayed to work for the new organization, he felt his ability to shape strategy would be shackled and he elected to leave. With 30 years of experience in the chemical industry, he now became a senior investment advisor at Robert Fleming & Co., but in 1988 he chose to start his own company, which would one day evolve into Compass Minerals.

"Though the range of my experience was broad," Harris wrote in a 1994 Chemical Business article, "I had only built a company from scratch as a subsidiary of a larger organization. So I decided to capitalize on what I knew best and opted to start my own chemical company." Harris brought in a pair of former colleagues to help him: Anthony Petrocelli, his assistant at Rhone-Poulenc, and Richard Donohue, his assistant at SCM. They formed a leveraged buyout firm called D.G. Harris and Associates and began looking for acquisition opportunities to jumpstart their venture. They avoided pharmaceuticals and high-technology chemical companies because they were too expensive. Harris wrote, "We wanted a business with steady cash flow that would be recession and inflation resistant." They ultimately settled on salt, which had 14,000 uses and was an industry with proven staying power. Moreover, as Harris noted, "Though there were three major North American producers, our research uncovered a number of significant, established regional suppliers, all subsidiaries of much larger companies." Harris viewed the potential acquisition targets as "corporate orphans," business units whose products did not fit into the big-picture plans of their parent companies. As described by Harris in Chemical Business, these orphans "got just enough capital to exist, but not enough to change; just enough management attention to continue operations, but not enough to forge new markets or create new products; just enough strategic planning to keep them contributing to the structure; but not enough to bring them into the limelight." Harris's vision was to acquire corporate orphans in the salt industry and put "them into the hands of management for whom they are core operations, and who have a vested interest in their success." As a result, the neglected entities could become "mainstays of a new company."

Harris's first target company was Diamond Crystal Salt Company, a family-owned Michigan company, but in 1987 he was outbid by International Salt, a subsidiary of the Dutch chemical giant Akzo Chemie. Nevertheless, the endeavor brought him in contact with officials at Chase Manhattan Bank. They suggested he consider buying Kansas-based American Salt Company, which Diamond itself had attempted to buy from General Host Corp. in 1984. Harris liked what he saw at American Salt and in 1988, 13 months after its founding, D.G. Harris and Associates acquired American Salt Co. from General Host Corp. for $32 million. Later in the year a second Kansas-based company, Carey Salt, a subsidiary of Canadian Pacific, Ltd., was bought for $26 million.

FORMATION OF NORTH AMERICAN SALT CO. IN 1990

In 1990 Harris formed the North American Salt Co. (NAMSCO) to act as a holding company for American Salt and Carey Salt and to prepare the way for his next major acquisition later in the year: the Toronto, Canada-based Sifto Salt division of Domtar Inc. for $184 million. Sifto assets included a rock salt mine in Goderich, Ontario, three evaporated salt plants in Canada, the Nickell Salt Co. in Saskatoon, and distribution facilities. As a result, NAMSCO was well balanced between rock salt, evaporated salt, and solar salt. Harris told the press at the time of the purchase, "The addition of Sifto will bring North American Salt's annual sales to about $200 million and give us the size and geographic spread we need to be competitive in the North American salt market." The deal did not, however, completely pass muster with the U.S. Department of Justice, which cleared the acquisition of most of Sifto's assets but objected to NAMSCO adding a large rock salt mine in Louisiana, due to concerns of lessening competition in highway salt and salt for agricultural purposes in some markets in the United States. The matter was ultimately settled by NAMSCO divesting its salt mines in Hutchinson and Lyons, Kansas, which lacked the location advantage of the Louisiana mine. Both it and the company's other mine in Goderich, Ontario, were located on the water and possessed better access to transportation. Less expensive shipping translated into low pricing of salt and the ability to attract more business. The company, now the third largest salt company in North America, was especially strong throughout Canada and west of the Mississippi River in the United States.

COMPANY PERSPECTIVES

Built on a foundation of over 100 years, Compass Minerals International is focused on supplying customers the best products and superior service—all at the right price.

In the course of assembling NAMSCO Harris and his partners became aware of another opportunity in a related field: Kerr-McGee Corp. was interested in selling its $200 million-a-year soda ash and boron products division, which included three chemical plants in Trona, California. Soda ash and boron were similar to salt in their limited competition. There were only a half-dozen soda ash producers in the United States and just one maker of boron chemicals. Boron and soda ash also shared some similar markets with salt and provided an additional benefit by offering entrée to foreign sales. In December 1990 Harris acquired the Kerr-McGee unit for about $210 million and formed North American Chemical Co. (NACC).

In 1993 Harris acquired Great Salt Lake Minerals and Chemical Corp., an Ogden, Utah-based company that mined and produced sulfate of potash for specialty fertilizers, and packaged it, NAMSCO, and NACC into a new inorganic chemical holding company called Harris Chemical Group. Along the way, Harris also picked up some European businesses that were maintained under a separate corporate structure. They included a group of English salt companies called Salt Union; Germany's Matthes und Weber, maker of soda ash; and Societa Chimica de Laderoo, an Italian boron derivatives producer. Soon after forming Harris Chemical Group, Harris also created a specialty chemicals group.

In December 1997 Harris cast off the orphans he had collected into Harris Chemical Group Inc., selling the holding company to IMC Global Inc., a North-brook, Illinois-based maker of fertilizers and animal feed ingredients. IMC also produced salt, but its annual output of 800,000 tons was just a fraction of the more than 11 million tons the Harris Chemical subsidiaries were able to turn out. The company now placed all of its salt assets in the IMC Salt unit. The deal was valued at $1.4 billion, with IMC Global paying 450 million in cash and assuming $950 million in debt.

FORMATION OF COMPASS MINERALS IN 2001

Little more than two years later, IMC Global put IMC Salt on the block after suffering through a rough patch for its core phosphate-based fertilizer products, troubled by weak demand and low prices. Even earlier IMC Global began trying to sell Great Salt Lake Minerals Corporation, acquired from Harris Chemical, which had taken the name of IMC Kalium Ogden. The buyer of IMC Salt was Apollo Management L.P., a New York private investment firm, which formed an entity in 2001 called Compass Minerals Group Inc. to buy an approximately 80 percent interest in IMC Salt and IMC Kalium Ogden while IMC Global retained a 20 percent stake. Another Apollo Management subsidiary, Salt Holdings Corporation, then acquired Compass Minerals Group and in November 2003 changed its name to Compass Minerals International, Inc. Compass Minerals paid $600 million for the IMC Global assets, including 13 salt-producing plants in North America and the United Kingdom, and the soda ash facility of IMC Kalium Ogden, which subsequently reverted to the Great Salt Lake Minerals name.

KEY DATES

1988:: D.G. Harris and Associates acquires American Salt Co. and Carey Salt.
1990:: North American Salt Co. (NAMSCO) is formed as a holding company for American Salt, Carey Salt, and Sifto Salt.
1993:: Great Salt Lake Minerals is acquired and folded into Harris Chemical Group with NAMSCO.
1997:: IMC Global acquires Harris Chemical.
2001:: Apollo Management forms Compass Minerals Group, and acquires IMC salt and soda ash assets.
2003:: Compass Minerals is taken public.

IMC Global cut its interest in Compass Minerals in 2003 by selling back a 15 percent stake for $60.5 million. Also included in the deal was the sale of a New Mexico SOP facility to Great Salt Lakes Minerals, with the proceeds used to pay down debt. IMC Global cashed out further in 2003 when Compass Minerals made an initial public offering of stock. The offering was underwritten by Credit Suisse First Boston and Goldman Sachs, and the proceeds went to existing shareholders rather than to the company, although the maneuver did create a public market for the stock to the benefit of Compass Minerals. At this point, Apollo Management owned 88.5 percent, IMC Global 5.8 percent, and officers and directors 3.9 percent. Because no money was put into the coffers of Compass Minerals, the $216.7 million "raised" was little more than a number used to calculate the registration fee. When it was over, Apollo Management retained a 38 percent share of the company and IMC a 2.5 percent interest. Additional offerings providing an exit strategy for Apollo Management were conducted in 2004. The first was a June secondary stock offering of nearly 6.9 million shares, a sizable portion of the firm's 11.5 million shareholding. Just three months later, Apollo Management filed a registration with the Securities and Exchange Commission to sell the rest of its shares in any manner it desired: through a public offering, a private sale, or any other means. Also covered in the registration were the shares still owned by IMC Global, soon to become Masaic after IMC Global merged with the fertilizer business of Cargill, Incorporated. By the end of 2004 both companies had reduced their interest in Compass Minerals to zero, necessitating some major changes to the company's board of ten directors, four of whom had been Apollo Management partners and a fifth who was IMC Global's CEO. When the shakeout was completed the size of the board was cut to eight.

Now a fully independent company, Compass Minerals looked to grow by increasing its capital investments by $5 million in 2005 and $14 million in 2006. A good portion of the money would be spent on expanding the magnesium chloride evaporation ponds at the Great Salt Lake, as well as upgrades on the production facility and the addition of a rail infrastructure. The company also began work on the installation of a new mill at a Canadian rock salt mine. To help pay for these and other capital improvements, Compass Minerals sold the evaporated salt business of British subsidiary Salt Union Ltd. due to changes in the chemicals industry in the United Kingdom. Management decided that the $36.3 million raised in the sale could be put to better use with the company's other operations.

Compass Minerals showed steady growth after breaking away from IMC Global. Sales that totaled $502.6 million increased to $742.3 million in 2005. Much of the company's success could be attributed to its CEO, Michael E. Ducey, a 30-year-veteran of Borden Chemical who in 2002 took the helm. In November 2005 he announced that he planned to retire at the end of 2006.