Sinochem Confirms Early-Stage Talks Over Nufarm Deal
(Bloomberg) -- Sinochem Corp. confirmed it is in early stage talks for a potential takeover of Nufarm Ltd., marking Chinas second attempt in as many years to buy Australias biggest supplier of farm chemicals.
By Shani Raja and Rebecca Keenan
-- Sinochem Corp. confirmed it is in early stage talks for a potential takeover of Nufarm Ltd., marking Chinas second attempt in as many years to buy Australias biggest supplier of farm chemicals.
âThese discussions are at a preliminary stage and incomplete and there is absolutely no certainty that matters will progress,â the Beijing-based company said in an e-mailed statement. Nufarm fell 4.1 percent on concern a potential deal for as much as A$3.5 billion ($2.9 billion) may not proceed.
Buying Nufarm would expand Sinochemâs share of the market for herbicides and pesticides, extending the reach of Chinaâs largest chemicals trader into Australia and the Americas as demand rebounds. Chinese companies, including Aluminum Corp. of China, have offered $21 billion for Australian resource assets this year to take advantage of lower valuations in the recession.
âFor China to sustain its spectacular growth longer term, it needs to secure raw materials from outside China,â said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. China has âbuilt substantial reserves, and one way of securing internal growth is to ensure it doesnât get caught in raw-material cost inflation.â
Shares of Melbourne-based Nufarm fell as much as 5.5 percent on the Australian stock exchange. They rose 13 percent when the company confirmed the talks on July 24.
Credit Suisse Group AG today cut Nufarmâs rating to âunderperformâ from âneutral,â and reduced its forecast for the companyâs full-year profit by 7.6 percent. The broker said Sinochem, Chinaâs largest fertilizer supplier, had made a âhalf-baked bid.â
âThere is some uncertainty about whether the takeover will get over the line,â said Chris Weston, an institutional dealer at IG Markets in Melbourne. âThe premium will have to be attractive.â
Any Sinochem offer of between A$14 and A$16 a share would be successful, Merrill Lynch & Co. analyst Mario Maia said in a July 24 report. That would imply earnings before interest tax depreciation and amortization âmultiples of between 9.7 and 10.8 times, which would still be 14 to 22 percent below historical levels,â he said.
Sinochems interest in Nufarm may encourage other companies to make a bid, JPMorgan Chase & Co. said in a note dated July 24. Sinochem could pay A$14.46, it said. Makhteshim Agan Industries Ltd., United Phosphorus Ltd. and Japanâs Arysta Life Sciences could also be interested in Nufarm, it said. Makhteshim, based in Tel Aviv, is the worldâs largest maker of generic agrochemicals and United Phosphorus is an Indian maker of agrochemicals and pesticides.
Nufarm, the worldâs eighth-largest crop protection company, confirmed on July 24 that it had been approached by Sinochem about a potential takeover. Its shares soared the most in nine months in Sydney trading that day, taking the companyâs market value to A$2.42 billion.
Sinochem is seeking to buy overseas assets to counter slowing growth, General Manager Liu Deshu said in March. Nufarm has operations in Australia, New Zealand, Asia, Europe and the Americas, according to its Web site. About 45 percent of Nufarmâs assets are in the Americas and the region accounted for 43 percent of sales in the last financial year.
A potential acquisition of Nufarm, a global leading farm chemical supplier, could help Sinochem to fully utilize its domestic sales network and tap the nations huge demand for farm chemicals, Fang Lei, a chemical analyst with Industrial Securities Ltd., said by telephone from Shanghai.
Any successful bid for Nufarm would depend on persuading Chief Executive Officer Doug Rathbone to sell his 11 percent stake, enough to block a full takeover under Australian law.
âIf an offer is made, Doug Rathbone would be a happy seller near or above A$14 per share,â Merrill Lynchâs Maia said. Rathbone had sold some of his stake recently at A$11.25, he said.
This is the second time in two years China has attempted to buy Nufarm. 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.
On July 24, Nufarm cut its profit guidance for the second time in two months. Net operating profit may be between 10 percent and 15 percent lower than a previous forecast because of a slump in demand for glyphosate, used to kill weeds, it said. The company is due to report annual earnings on Sept. 28.
Chinese companies have had a mixed track-record in acquiring Australian assets. State-owned Aluminum Corp. of Chinaâs $19.5 billion investment in Rio Tinto Group was rejected last month after Rio decided to seek a share sale and a joint venture with BHP Billiton Ltd. China Minmetals Group had to revise a bid for assets of OZ Minerals Ltd. after the Australian government ruled a mine is close to a weapon-testing range.
To contact the reporters on this story: Shani Raja in Sydney at firstname.lastname@example.org; Rebecca Keenan in Melbourne at email@example.com