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Bloomberg Article: Chinese looking to buyout Fertilizer & Agri companies

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July 28, 2009 – Comments (0)

Here comes the M&A back into this hot sector: POT, MOS, BG, CGA, AGU, TRA, CF

Sinochem Confirms Early-Stage Talks Over Nufarm Deal (Update3)

http://www.bloomberg.com/apps/news?pid=20601012&sid=allp0VPyCEZI

By Shani Raja and Rebecca Keenan

July 27 (Bloomberg) -- Sinochem Corp. confirmed it’s in “early stage” talks for a potential takeover of Nufarm Ltd., marking China’s second attempt in as many years to buy Australia’s biggest supplier of farm chemicals.

“These discussions are at a preliminary stage and incomplete and there is absolutely no certainty that matters will progress,” 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 Sinochem’s share of the market for herbicides and pesticides, extending the reach of China’s 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.

“For China to sustain its spectacular growth longer term, it needs to secure raw materials from outside China,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. China has “built substantial reserves, and one way of securing internal growth is to ensure it doesn’t get caught in raw-material cost inflation.”

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.

‘Half-Baked’

Credit Suisse Group AG today cut Nufarm’s rating to “underperform” from “neutral,” and reduced its forecast for the company’s full-year profit by 7.6 percent. The broker said Sinochem, China’s largest fertilizer supplier, had made a “half-baked bid.”

“There is some uncertainty about whether the takeover will get over the line,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “The premium will have to be attractive.”

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 “multiples of between 9.7 and 10.8 times, which would still be 14 to 22 percent below historical levels,” he said.

Rival Bids?

Sinochem’s 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 Japan’s Arysta Life Sciences could also be interested in Nufarm, it said. Makhteshim, based in Tel Aviv, is the world’s largest maker of generic agrochemicals and United Phosphorus is an Indian maker of agrochemicals and pesticides.

Nufarm, the world’s 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 company’s 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 Nufarm’s assets are in the Americas and the region accounted for 43 percent of sales in the last financial year.

‘Huge Demand’

A “potential acquisition of Nufarm, a global leading farm chemical supplier, could help Sinochem to fully utilize its domestic sales network and tap the nation’s 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.

“If an offer is made, Doug Rathbone would be a happy seller near or above A$14 per share,” Merrill Lynch’s 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 China’s $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 sraja4@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

Last Updated: July 27, 2009 03:03 EDT

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