Sinochem Corp, China’s largest chemicals trader, offered to buy Australia’s Nufarm Ltd for A$2.8 billion ($2.4 billion) to gain a global distribution network for pesticides and herbicides.
State-owned Sinochem signed an initial accord to pay A$13 a share for Nufarm, Australia’s largest supplier of farm chemicals, the Melbourne-based company said today in a statement. That’s 17 per cent more than the last closing price. There’s “no certainty” that a final deal will be reached, Nufarm said.
Sinochem will be able to tap surging global demand for crop chemicals needed to meet a United Nation’s June forecast that food supplies must double by mid-century to feed the world population. The proposal marks China’s second attempt in as many years to buy Nufarm, which employs more than 2,600 people from Australia to New Zealand, Europe and the Americas.
“A successful purchase of Nufarm would give Sinochem significant presence in these markets,” Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd in Melbourne said. Crop protection “is likely to become increasingly important as the global population grows and available agricultural land mass shrinks,” he said.
Nufarm, which has a market value of A$2.6 billion, rose 7.4 per cent to A$11.96 on the Australian stock exchange at the 4:10 pm close in Sydney time. It closed at A$11.14 on September 25. The stock has gained 14 per cent this year.
The company, which said it hasn’t contacted any potential counter-bidders, is being advised by UBS AG and Sinochem is being advised by Royal Bank of Scotland Group Plc, Nufarm said in the statement.
Global farmers
Buying Nufarm will help Sinochem to boost its presence in global farm chemicals and provide better products and services for domestic and overseas farmers, the Beijing-based company said today in a statement on its Web site. China Investment Corp, the nation’s sovereign wealth fund, this month bought a 15 per cent stake in commodity supplier Noble Group Ltd. and Cofco Ltd, China’s largest grain trader, said in April it’s seeking acquisitions that will increase agricultural imports.
“Sinochem aims to increase its market share in the overseas farm chemicals network via the acquisition of Nufarm, which has grown rapidly since 2000 and has great global sales network and experience,” Qiu Wei, chief chemical analyst with Guosen Securities Ltd, said today by telephone from China’s southern city of Shenzhen. “Sinochem will be able to increase its profit margin from selling farm chemicals to overseas markets, where prices are higher.”
Forecast growth
Nufarm, whose sales have doubled to A$2.6 billion since the start of the decade, is the biggest supplier of crop protection chemicals in Australia with about 45 per cent of the market, spokesman Robert Reis said today by phone. In North and South America and Europe, the company’s market share is in the range of 4 per cent to 8 per cent in most of those markets, he said.
Chinese investments in Australian resources have faced increasing scrutiny from Australian lawmakers in the past year as the biggest metals consumer accelerates takeovers. China Non- Ferrous Metal Mining (Group) Co was blocked last week by Australia’s Foreign Investment Review Board from buying a majority stake in rare-earth producer Lynas Corp.
“There appears to be a lack of national interest or market share issues when compared to recent deals, which FIRB has rejected,” said Pengana’s Schroeders. “It appears unlikely the deal will get rejected on FIRB grounds.”
Recovering demand
Nufarm today forecast growth in profits in 2010 as lending increases in the $40 billion global crop protection market. Demand is recovering for food goods as the recession eases, Archer Daniels Midland Co, the world’s largest grain processor, said this month.
Sinochem, established in 1950, is China’s biggest integrated agricultural company selling fertilizer, pesticide and seed products. It’s also the country’s fourth-largest oil company and leading chemical service provider. The company’s net profit rose 6 percent to 6.45 billion yuan ($945 million) in 2008 after sales surged 36 per cent to 308.9 billion yuan, according to its annual report.
The two parties plan to reach a further agreement, which will need approval from regulators and shareholders, Sinochem said in the statement. The deal is subject to regulatory approval in Australia and China, Nufarm said in its statement.
Nufarm is now in exclusive talks with Sinochem, the company said today on a conference call with reporters. Sinochem will study Nufarm’s books between October 15 and November 18 and Nufarm expects a deal to be completed in the first quarter of 2010.
State-owned China National Chemical Corp, backed by buyout fund Blackstone Group LP, ended talks to buy Nufarm for A$3 billion in December 2007, without giving a reason.
Nufarm’s BBB-credit rating was placed on CreditWatch with negative implications today by Standard & Poor’s Ratings Services after the Sinochem proposal was announced.
