Challenges Begin to Emerge for UPL-Arysta Combine
UPL Ltd’s $4.2 billion purchase of Arysta LifeScience Inc. avoided the typical investor skepticism associated with large acquisitions, writes R. Sree Ram on LiveMint.com. With the management convincing investors about gains from synergies, the stock has gained 36% since the acquisition announcement on 20 July. Part of the gains can be explained by the recovery in Latin America, a large market for UPL.
The Arysta acquisition is expected to drive up the leverage, thanks to borrowing of $3 billion, while synergies estimated at $205-255 million per annum are expected to create value from the first year of amalgamation itself.
However, these assumptions are at risk as challenges are emerging for the combined entity. The drought in Europe is one, points out CGS-CIMB Securities (India) Pvt. Ltd. Sparse rain and high temperatures impacted farm productivity. So much so that fodder for cattle is falling short in some regions. Besides, the heat waves can lower the attacks of fungus, impacting agrichemicals sales in the region, warns CGS-CIMB. “The recent heat waves have meant bad news for agrichemicals, and particularly fungicides. Even Bayer in its recent conference call had highlighted that the European drought will likely impact fungicide and insecticide sales in the region,” adds an analyst at CGS-CIMB.