"A little pepper for the fertilizer industry," is how Psagot Investment House Ltd. analyst Limor Gruber described Israel Chemicals Ltd's (TASE: ICL) acquisition of the Scotts' Global Professional specialty fertilizer business from The Scotts Miracle-Gro Company (NYSE: SMG).
"This a small but interesting acquisition, which will turn Israel Chemicals into the leader in an industry characterized by rapid growth, and it will be able to exploit synergies on the cost side, and especially on the revenue side," said Gruber.
Gruber also raised another point, which touches on another aspect of Israel Chemicals at this time. "As part of Israel Chemicals' struggle against the cancellation of its breaks on the labor tax, the acquisition sends a signal to government officials that the company has options to expand outside Israel," she says.
"Any expansion measure is welcome," says Migdal Capital Markets analyst Amir Adar. "We favorably view the rationale for the deal, as well as the size of this developing market. However, in view of the size of the deal, nothing has changed as far as the company picture is concerned."
Bank Hapoalim analyst Yaron Friedman says, "The acquisition of Scotts Global Pro is another step by Israel Chemicals to strengthen its global position in the agrochemicals industry by increasing its efforts in the industry's fastest growing and most profitable sector. Besides the advantages by expanding activity in this sector, we believe that Israel Chemicals can expect to benefit from ownership of the entire specialty fertilizer production chain as well as exploiting the synergies between the business of Scott Global Pro and its own business in this sector."
Clal Finance Brokerage analysts Yuval Ben-Zeev and Jonathan Kreizman note a less favorable aspect of the deal. "Scott Global Pro's current EBITDA is 13% of sales, less than Israel Chemicals' current phosphates business. Nonetheless, we believe that exploiting the operational synergies and optimization of the common distribution networks will create the conditions for improving profit margins within the coming quarters." They add, "The present acquisition sharpens the question about the sources of Israel Chemicals' future growth engines."
Published by Globes [online], Israel business news - www.globes-online.com - on December 8, 2010
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