Makhteshim Agan Industries Ltd. (TASE: MAIN) has been forced to issue another profit warning for the fourth quarter of 2006. The current warning is related to a $10 million charge the company will pay to settle a legal claim in the US.
The charge is the result of complications arising from Makhteshim Agan’s penetration into the US market, which was launched several years ago when the company acquired local distributors and licenses for generic products. The company calculated that it was not worthwhile to set up a US manufacturing and marketing platform from scratch.
Since Makhteshim Agan does not itself develop the generic products that it markets in the US, it has operated through a data compensation procedure, under which it pays the makers of the original products a certain sum on the basis of its generic license and specific research employed.
The case in question involves a basket of generic agrochemical products that Makhteshim Agan acquired in the US in 2002. The company was supposed to compensate the original manufacturer for a generic license for a weed killer called pendamethaline. However, the company decided not to market the product for economic reasons.
Yesterday, Makhteshim Agan received a draft arbitrator decision on the case, which ordered the company to pay the original manufacturer, which is apparently a leading US agrochemicals maker, $9-10 million for the generic license. Makhteshim Agan was surprised by the decision, and now considering its next steps. In the meantime, it published the profit warning resulting from the decision.
Makhteshim Agan has a number of options in response to the arbitration decision:
- It can apply for a new arbitration hearing within ten days on the grounds that the original decision is wrong, and ask for a new ruling within 30 days.
- It can pay the compensation.
- It can market a generic pendamethaline product, in order to minimize the damage from the compensation award.
Published by Globes [online], Israel business news - www.globes.co.il - on December 6, 2006
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