Nufarm To Consider Sinochem Offer

Posted by Matt Hopkins|27 July 2009

Melbourne, Australia-listed Nufarm Ltd. — the world’s eighth largest agrochemical manufacturer — has confirmed that China’s state-owned Sinochem Corp. has approached Nufarm over a potential acquisition, reports Business Day. The possible Chinese bid has been given the thumbs-up by analysts — Nufarm shares on the Australian
stock exchange rose 13% when the company confirmed the talks with Sinochem on July 24.

This would be China’s second attempt to acquire Nufarm in two years, after China National Chemical Corp, or ChemChina, failed to launch its US $2.45 billion offer in 2007.

Analysts believe the fact Nufarm is gearing for its second earnings downgrade in less than two months will work in favour of Sinochem, the biggest Chinese producer of insecticides, pesticides and herbicides. Its subsidiary Sinofert has an enterprise value of $5.3 billion, according to Deutsche Bank. Last month, two weeks after raising $247 million in fresh equity, Nufarm said it would miss its full-year earning guidance of $181 million by about 15%. Now the company warns its 2009 financial year profit could be 10% to 15% below its latest forecast of $154 million, largely as a result of the deterioration in the glyphosate business in North America, resulting in a glut and lower pricing.

JP Morgan’s Andrew Scott, Alistair Reid and Anthony Pasee-de Silva believe the Sinochem deal has merit. They said Nufarm had excellent established distribution networks but no presence in China outside of some joint venture intermediate manufacturing. Conversely, Sinochem had a solid raw materials presence and established Chinese base but lacked a global distribution platform. “Sinochem’s approach confirms our positive view on the outlook for
agriculture for the 2010 financial year and the attractiveness of Nufarm’s assets,” they said.

More than a third of Nufarm’s earnings are from Australia and New Zealand. Nufarm started in New Zealand, but moved its head office to Australia in 2000. Nufarm CEO Doug Rathbone told the market there was no certainty an agreement would be reached with Sinochem but confirmed the company would consider the offer.