Chinese state-owned enterprise Sinochem yesterday tabled a A$2.8 billion ($2.4 billion) bid to buy 100% of the equity of Australian farm chemicals company Nufarm. Including debt on Nufarm's books, Sinochem's bid ascribes an enterprise value of A$3.7 billion to Nufarm.
Nufarm describes itself as one of the world's leading crop protection companies and says it makes products that help farmers protect their crops against damage caused by weeds, pests and disease. The company had earlier informed shareholders that Sinochem approached it on June 29 about a takeover. At the time, the two parties entered a confidentiality agreement.
Yesterday, Nufarm and Sinochem signed an exclusivity agreement for a period until December 3. Within this timeframe, Sinochem will be allowed to conduct due diligence for a period of five weeks between October 15 and November 18. Sinochem has also agreed, on a best efforts, non-binding basis, to help Nufarm arrange financing during the exclusivity period.
The offer price translates into A$13 per share. Nufarm has also agreed to pay shareholders a dividend of 15 Australian cents per share. Nufarm shares gained 6% during the course of trading last week to close at A$11.14 on the Australian Securities Exchange (ASX) on Friday. The offer price represents an 18% premium to Friday's closing price. However, speculation about where the deal would price leaked into the public domain around three weeks ago, so the share price had already started inching upwards.
"Six-month and three-month weighted average prices are of little relevance in this case as Nufarm has issued three profit warnings in the recent past so the share price has been all over the place," said a source close to the situation.
In May, Nufarm sold A$300 million of equity at a price of A$11.25 per share. The company issued mostly new shares, although chief executive officer Doug Rathbone sold around A$20 million of his holding as part of the offering. After the May sell-down Rathbone holds around 11% of Nufarm's equity. Amalgamated Dairies (New Zealand) is the second-largest shareholder with a 7% stake. The rest of the shares are dispersed across institutional investors and the retail public.
Nufarm also announced results yesterday, declaring a profit of A$159.7 million for the fiscal year to July 31, 2009.
The deal is subject to approval by Australia's Foreign Investment Review Board (FIRB), competition authorities in Australia and elsewhere, as required, and relevant Chinese government approvals. Control transactions and 100% takeovers by Chinese firms in Australia have faced some hurdles recently, but these have generally been in the more sensitive mining and natural resources sectors. Some specialists said a takeover of a producer of farm chemicals should be less sensitive.
Beijing-based Sinochem is involved in trading and manufacturing of chemicals, plastics, rubbers and metallurgy products. This is Sinochem's second cross-border acquisition. Last year, its subsidiary Sinochem International acquired 51% of GMG Global. Singapore-listed GMG owns and operates rubber plantations in Cameroon and the Ivory Coast and has rubber processing facilities in the Ivory Coast and Indonesia.
This is the second time in the past couple of years that Nufarm has been courted by a Chinese suitor. In November 2007 a consortium of investors comprising China National Chemical Corporation (ChemChina) and private equity firms the Blackstone Group and Fox Paine tabled a preliminary offer to acquire Nufarm for A$17.55 per share in cash, valuing 100% of Nufarm's equity at A$3 billion.
ChemChina is the largest manufacturer of pesticides in China and, like Sinochem, it is state-owned. It was a 60%-investor in the special purpose vehicle created to affect the acquisition of Nufarm with the private equity firms owning 20% each.
The proposed deal followed soon after Blackstone paid $600 million for a 20% stake in China National Bluestar (Bluestar), a ChemChina subsidiary and a specialty chemicals company, in September 2007. Bluestar was Blackstone's first China investment. The subsequent bid for Nufarm was heralded as the type of cooperation China was seeking to engage in with private equity investors. However, in December the ChemChina-led consortium decided not to pursue the bid for Nufarm.
On the unsuccessful 2007 deal Nufarm was advised by Goldman Sachs JBWere and Arnold Bloch Leibler. ChemChina was advised by Merrill Lynch. Both the Australian and the Chinese sides have elected to test their luck with different investment banks on the current deal and only Arnold Bloch Leibler still has a seat at the table. Nufarm is currently being advised by UBS and Arnold Bloch Leibler. Sinochem is being advised by the Royal Bank of Scotland and Blake Dawson.
Nufarm shares gained 7.4% on the ASX yesterday to close at A$11.96, as it continued to move towards the offer price.