Nufarm's 2007 annual report (pictured). The company temporarily halted trading on the Australian Stock Exchange on November 1st while it considered its response to a take-over offer (Agrow No 527, p 2)

Nufarm has agreed to exclusivity for an acquisition proposal for 100% of Nufarm shares at Aus$17.25 per share. The effective bid price per share could finally work out to be Aus$17.55 as Nufarm will pay a dividend of up to Aus$0.30 per share based on the company's earnings and cashflow prior to the acquisition. This price represents a 27% premium to Nufarm's closing share price on October 30th, the day before significant takeover speculation in Nufarm shares, and a 35% premium to Nufarm's volume weighted average share price for the 12 months prior to October 30th. Due diligence will be undertaken by the consortium from November 12th to December 10th.

ChemChina is a state-owned, deep-pocketed Chinese corporation that came into existence in 2004 as a result of a merger of China National Blue Star Corporation and some other state-owned companies. It is a diversified chemical enterprise with significant interest in agrochemicals. In 2005, it signed an agreement with the Chinese National Development Bank to co-operate in a programme of acquiring and combining pesticide companies (Agrow No 469, p 4).

It subsequently acquired domestic Chinese pesticide companies, including Sanonda (Agrow No 474, p 3) and a stake in Shandong Dacheng (Agrow No 507, p 4), with a view to reduce over-capacity, achieve economies of scale, and upgrade domestic manufacturing. It is currently the largest producer of pesticides in China. The finalisation of the deal would result in the creation of the global leader in off-patent pesticides, the companies claim.

The US-based Blackstone Group had acquired a 20% stake in China National Blue Star Corporation by investing $600 million in September 2007, with the remaining 80% stake held by ChemChina. The rationale behind the move was to build a strategic partnership, in which Blackstone's expertise would gel with ChemChina's global ambitions. The proposed acquisition of Nufarm is the first step in this strategy. Interestingly, in June 2007, the Chinese state foreign exchange investment company, with $200,000 million in initial funding, had made its first investment by acquiring a 9.4% stake in Blackstone for $3,000 million.

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The acquisition bid signals the intention of the Chinese to gain prominence in the global agrochemical market, according to Gautam Sirur, principal consultant, Cropnosis. "Quite a few Australian companies have been acquired by the Chinese. The Chinese corpus of $200,000 million for acquisitions is being routed through companies like ChemChina."

Nufarm itself has been quite aggressive in overseas acquisitions in the past, and acquired Italian agrochemical company Agrosol in October 2006 (Agrow No 505, p 2) and Brazilian company Agripec in June 2007 (Agrow No 521, p 3). Nufarm is the ninth largest crop protection company globally and employs around 2,600 people. In the year ending July 31st 2007, it recorded a 5.2% growth in revenues to Aus$1,764 million (Agrow No 529, p7). If the acquisition succeeds, the Nufarm management team would oversee the management of the combined operations of Nufarm and ChemChina.

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