September 29,2009

China Continues to Eye Australian Companies; Agricultural Firms Next Targets

By CSC staff, Shanghai

Although the Australian investment authorities have rejected several overseas companies' attempts at acquiring local resource projects, China's Sinochem Corporation, affiliated with state-owned Sinochem Group, has signed a framework agreement with Nufarm, one of the world's leading crop protection companies in Australia, to acquire the latter's all ordinary outstanding shares.


Sinochem Corporation is set to invest AU$2.834 billion (16.685 billion yuan) to acquire Nufarm's 218 million shares at AU$13 per share. The main reason for this acquisition, analysts believe, is that Sinochem Corporation is captivated by Nufarm's large chemical sales channel.


Chinese firms know that they need to enter the global agricultural production field to safeguard the country's own agriculture and food supply security in the process of urbanization. China has increasingly worried about the expansion of foreign agricultural firms in its domestic market. Foreign capital controls about 70% of the production capacity in China's edible oil area, for instance, and big brands in this area all have foreign investment. Most of the soybeans China consumes are imported from other countries. China is also worried that foreign companies may dominate the supply of chemical fertilizers such as potash to make huge profits.


But China can not adopt protectionist policies in agriculture because making the use of the international market is conducive to its own agriculture and food security. Chinese companies will try to conduct more international investment and M&A in agricultural production, processing, circulation, distribution, and other areas in China's course of agricultural modernization.


Nufarm is headquartered in Australia, producing and selling pesticides products such as glyphosate, with sales operations in more than 100 countries across the world.


The acquisition comes after Nufarm's annual net profit plummeted by 42%, totaling only AU$79.9 million, despite slightly increasing sales of 7% (AU$2.68 billion). The price of its main product glyphosate has fallen considerably worldwide.


The sales revenue of glyphosate totaled AU$833 million, accounting for 31% of total revenue and 14.9% of gross profit. Last year the sales of glyphosate brought earnings of AU$909 million, accounting for 36% of overall sales and 31% of gross profit.


China's glyphosate price has also fallen sharply. The current ex-factory price of glyphosate in the Yangtze River Delta is less than 20,000 yuan/ton, down 80% compared with its peak value of 10,000 yuan/ton in 2008.


Nufarm has a big market share in the US and Australia, each accounting for 25% of its global revenue, with market share in South America, Europe, Asia (and New Zealand) of 17%, 22% and 6%, respectively. The sales layout is what was most attractive to the Chinese enterprise.


Sinochem Corporation said in a statement that the acquisition of Nufarm will accelerate its achievement of the strategic goal of "enhancing influence in the global agricultural input area."


In accordance with the agreement of both sides, Sinochem Corporation will start due diligence on October 15 and complete it by November 18. "We will discuss issues based on the results of due diligence." On December 3, the two sides will sign a final contract.


The acquisition needs approval from both Chinese and Australian regulatory departments, a general meeting of Nufarm shareholders, and the Australian judiciary.

Chinese analysts believe it is possible this acquisition will get approval from the Australian government because Nufarm is a non-resource company with a distribution network throughout the world.


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