The acquisition of Australian generic agrochemicals manufacturer Nufarm Ltd. (ASX:NUF), a rival of Makhteshim Agan Industries Ltd. (TASE: MAIN), will not go ahead. The buyers - a consortium of Blackstone Group, Fox Paine Management III and China National Chemical Corporation (ChemChina) - announced today that they were unable to formalize their offer for the company. Media reports said that the price tag was $3 billion.
Nufarm's share fell 12% on the news. Makhteshim Agan fell 2.4% today.
Nufarm is the world's second largest generic agrochemicals manufacturer after Makhteshim Agan. Most of Nufarm's business is in the Asia Pacific region, as well as in Brazil through a subsidiary Agripec Quimica e Farmaceutica SA. The company's main drawback is its very high exposure to the Australian market.
The cancellation of Nufarm's takeover may put Makhteshim Agan back in the picture to try again to take it over. Makhteshim Agan had considered making a bid when its parent company, Koor Industries Ltd. (TASE:KOR), was still controlled by Charles Bronfman. The matter came up again during the current Nufarm action, after IDB Holding Corp. Ltd. (TASE:IDBH), controlled by Nochi Dankner, acquired Koor, but dropped the idea because of the heavy financing burden entailed in the price tag.
The global media have mentioned both Makhteshim Agan and US agrochemical manufacturer Monsanto Company (NYSE:MON) as possible buyers of Nufarm if the present deal fell through.
An acquisition of Nufarm by Makhteshim Agan could hypothetically give the company a major leg-up in the Australian market. Makhteshim Agan gained a foothold in this market in 2004, when it acquired Farmoz for $25 million, and it has subsequently steadily expanded its sales to become the fourth or fifth largest agrochemicals company in the Asia-Pacific region. The Australian agrochemicals market is estimated at more than $1 billion a year.
The main problem Makhteshim Agan faces with an acquisition of Nufarm is the financial burden that this would entail. Makhteshim Agan's current market cap is about $4 billion, which would make an acquisition particularly complicated both operationally and financially. In addition, IDB owns just 40% of the company through Koor, and an acquisition on this scale would necessarily involve a share-swap to some extent. An already low ownership holding by Makhteshim Agan's shareholders and a subsequent dilution through such a process would weigh against this move.
Nochi Dankner reportedly personally considered acquiring Nufarm as part of his planned globalization of IDB. However, Dankner is presently bearish about the global economy, which probably lowers his motivation to make a deal.
IBI Investment House analyst Yuval Zehira said, "A possible acquisition of Nufarm by Makhteshim Agan would be a very difficult task for two main reasons. First is the issue of financing, and it should be remembered that the company is bidding against hedge funds with far greater resources. Second is IDB's low stake in Makhteshim Agan, which would greatly hinder a full merger through a share-swap, which would result in IDB having only a marginal holding in the company."
Zehira added, "Cancellation of the Nufarm deal is good news for Makhteshim Agan, because the Chinese company that entered into the picture has never been good news for the Israeli company because of the price war that could result. On the other hand, it is still not clear who will buy Nufarm, so it's premature to talk about consequences."
Published by Globes [online], Israel business news - www.globes-online.com - on December 10, 2007
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