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Sumitomo Beats Sinochem for Stake in Aussie Farm Firm

By Madelene Pearson

(Bloomberg)— Nufarm Ltd. said Sumitomo Chemical Co. agreed to buy a 20 percent stake in the company after Australia's largest farm chemicals supplier rejected a A$2.6 billion ($2.3 billion) takeover offer from China's Sinochem Corp.

The Japanese company will acquire the stake at A$14 a share, Melbourne-based Nufarm said today in a statement. That values the holding at about A$611 million and is priced 17 percent higher than Sinochem's revised proposal for the whole company.

Sumitomo Chemical, the world's ninth-biggest maker of agricultural chemicals, wants to expand sales in the industry and benefit from Nufarm's sales network in Australia, Europe and the Americas. Sinochem's revised bid was rejected by Nufarm after three months of talks, saying it undervalued the company.

"Sumitomo turned out to be the white knight waiting in the wings," Cameron Peacock, market analyst at IG Markets in Melbourne, said in an e-mailed statement. Nufarm's shares faced "getting smashed all the way back to the A$8 range had the board rejected the bid with no other suitors in sight," he said.

Nufarm rose 3.1 percent to A$10.89 at 1:45 p.m. Sydney time, its biggest gain since Dec. 18. It earlier rose as much as 5.1 percent. The stock, with a market valuation of A$2.4 billion, has risen 3.8 percent this year, compared with a 30 percent gain in the benchmark index.

Second Attempt

The proposal was China's second attempt in as many years to buy Nufarm for its global distribution network for pesticides and herbicides. Nufarm signed an initial accord with Sinochem in September at A$13 a share, and the Chinese company cut the price to A$12 this month, without giving a reason. Nufarm said Dec. 22 it was disappointed and seeking more information from Sinochem. The companies had been in talks since July.

"Sinochem's revised proposal is less attractive than the position which was agreed between the parties in September," Nufarm Chairman Kerry Hoggard said in the statement. "Sumitomo's proposal places an appropriate value on the company."

Sinochem "regrets" Nufarm's decision, the Beijing-based company said today in a statement on its Web site. "Given the challenging and complicated environment in which Nufarm is operating in the future, Sinochem strongly believes that the revised offer was fair," the company said. "We will continue to strengthen our cooperation with the world's agrochemical enterprises and unswervingly push forward the globalization of our agrochemical business."

Share Sale

Nufarm also plans to raise A$250 million selling shares to holders, which will be underwritten by UBS AG, the company said in a statement. The funds will place the company in a better position to "pursue growth opportunities," it said. It has refinanced about A$1 billion of debt, scheduled to be renewed by year's end, Nufarm said. The company had A$527 million of long- term debt at June 30, according to Bloomberg data.

Standard & Poor's said on Nov. 24 it may lower its rating on Nufarm should the deal with Sinochem be scrapped. It maintained its BBB- on Nufarm that day.

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 percent of the market, spokesman Robert Reis said Sept. 28. In North and South America and Europe, the company's market share is in the range of 4 percent to 8 percent, according to Reis.

"Sumitomo Chemical is actively expanding in the field of agrichemicals," Kenichi Hirano, general manager at Tachibana Securities Co. said by telephone today. "The company raises 70 percent of its sales from the domestic market and I believe it's a strategically effective way for the company to expand globally."

Regulator Approval

Sumitomo's crop protection unit has annual sales of $1.3 billion, with more than 40 percent of sales relating to insecticides, Nufarm said. The Japanese company already has approval from Australia's Foreign Investment Review Board for its proposed investment, Nufarm said.

The purchase will make Sumitomo Chemical Nufarm's biggest shareholder, according to Bloomberg data. Chief Executive Officer Doug Rathbone is currently the largest shareholder with an 11.08 percent stake.

The sale of shares to Sumitomo Chemical, under an initial agreement, will be through a tender offer to holders, which will be subject to approval to be sought at a meeting in March, Nufarm said in the statement. The Sumitomo offer needs approval from its board, which is scheduled to meet Jan. 22, Nufarm said.

Sumitomo Chemical is paying 13.3 times earnings before interest, depreciation and amortization, compared with Sinochem's proposed 11.4 times and the 7.14 median of 10 comparable transactions, according to Bloomberg data.

'Too High'

"Sinochem lowered its offer for Nufarm amid concern that the acquisition cost might have been too high," said Ni Xiaoman, an analyst at BOC International Ltd. "It isn't a surprise that the bid failed and it won't deter Sinochem's move to continue seeking overseas targets to expand."

Sinochem, established in 1950, is China's biggest integrated agricultural company selling fertilizer, pesticide and seed products. China National Chemical Corp., backed by buyout fund Blackstone Group LP, ended talks to buy Nufarm in December 2007 after a study of its accounts.

Nufarm reported a 42 percent drop in profit in September after cutting its forecast three times during the year. Profit fell to A$79.9 million in the 12 months ended July 31, the lowest annual profit since 2004 according to Bloomberg data.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

Regions : Asia

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