China’s Sinochem Corp (中化) confirmed it was in “early stage” talks with Nufarm Ltd, Australia’s biggest supplier of farm chemicals, about a potential takeover.
“These discussions are at a preliminary stage and incomplete and there is absolutely no certainty that matters will progress,” it said in an e-mailed statement from its public relations agency. “This is one of a range of potential growth opportunities that Sinochem is currently exploring.”
Buying Nufarm would expand Sinochem’s share of the market for herbicides and pesticides, extending the reach of China’s largest chemicals trader into Australia and the Americas as demand rebounds. Chinese companies, including Aluminum Corp of China (Chalco, 中國鋁業), have offered US$21 billion for Australian resource assets this year to take advantage of lower valuations in the recession.
“For China to sustain its spectacular growth longer term, it needs to secure raw materials from outside China,” said Tim Schroeders, who helps manage US$1 billion at Pengana Capital Ltd in Melbourne. “It’s built substantial reserves, and one way of securing internal growth is to ensure it doesn’t get caught in raw-material cost inflation.”
Nufarm confirmed on June 24 that it had been approached by Sinochem about a potential takeover. Its shares soared by the most in nine months in Sydney trading that day.
“The Nufarm board will consider any offer or proposal it receives having regard to all the alternatives available to the company,” the Melbourne-based company said in its statement on the same day.
“There is no certainty that any agreements will be reached or that an offer or proposal will be put to Nufarm shareholders,” Nufarm said.
Sinochem’s success depends on persuading Nufarm’s chief executive officer Doug Rathbone to sell his 11 percent stake in the company, enough to block a full takeover under Australian law. The Chinese company may offer between A$12 (US$9.81) and A$15 a share for Nufarm, said David Halliday, a trader at Macquarie Group Ltd.
Sinochem is seeking to buy overseas assets to counter slowing growth, general manager Liu Deshu (劉德樹) said in March.
“The valuations of these Australian companies right now makes them tempting,” Schroeders said. “The proximity of Australia to Asia is also a huge advantage for Chinese companies, as well as the Australian government’s relative willingness to welcome offshore investment.”
Chinese companies have had a mixed record in acquiring Australian assets. State-owned Chalco’s US$19.5 billion investment in Rio Tinto Group was rejected last month after Rio decided to seek a share sale and a joint venture with BHP Billiton Ltd. China Minmetals Group (五礦集團) had to revise a bid for assets of OZ Minerals Ltd after the Australian government ruled a mine was close to a weapons-testing range.