Sinochem eyes Nufarm acquisition

Sinochem eyes Nufarm acquisition

The major regulatory risk is Australian foreign-investment approval, which has been difficult to predict, especially when state-owned Chinese firms seek to take control of local assets.

“There could be issues, but I think on balance it should be ok,” Ausbil Dexia (fund manager) Chief Executive Paul Xiradis said, arguing that Nufarm did not pose the same national interest concerns as China’s recent mining investments.

Australia’s Foreign Investment Review Board (FIRB) has stymied at least two major Chinese investments in Australia this year, both involving local companies that own large mineral deposits. In contrast, Nufarm is in the manufacturing industry where the foreign investment regime has generally been more liberal.

“It should be quite a do-able transaction from the FIRB’s point of view,” Xiradis further pointed out.

The main attraction for Sinochem is Nufarm’s global distribution network, which includes businesses in Asia, South America and Europe, analysts say.

Bank of America Merrill Lynch had speculated that an offer between 14 to 16 dollars a share would be accepted by the board.

“Whether it succeeds at that price, it’s hard to say, but I don’t think there’s going to be too many counteroffers. It has been known that Nufarm is potentially up for sale and no one else has come to the party at this point,” Mr. Xiradis said. Ausbil owns Nufarm shares but declined to divulge the holding.

Nufarm reported a 2.6 percent drop in net profit on Monday and flagged a challenging operating environment in the current year. That cautious outlook could be part of the reason for the lower-than-expected bid, analysts said.

Resource-hungry China has been looking to buy Australian mining companies, including a $2.9 billion bid by state-owned Yanzhou Coal Mining Co for Felix Resource. So far this year, Chinese companies have invested about $5 billion in Australian companies.

Last month, China’s biggest steelmaker, Baosteel, agreed to buy a 15 percent stake in iron ore explorer Aquila Resources for $240 million.

China is Australia’s biggest export market, with two-way trade worth $53 billion last year.

Nufarm said there was still no certainty a deal would proceed, despite its support for the heads of agreement.

It is the second time Nufarm has received an approach from a Chinese firm in two years. In 2007, China National Chemical Corp., China’s leading chemical producer, led a 3 billion dollar approach with the U.S. private equity firms Blackstone Group and Fox Paine Management, but they did not make a formal offer.

Nufarm is being advised by UBS, while the Royal Bank of Scotland is advising Sinochem.