The $100m Roundup rights contract which Monsanto removed
from Nufarm has been awarded to China's Sinochem, deepening closely-watched
ties between the US seed giant and the state-run chemicals conglomerate.
Nufarm on Tuesday revealed that Monsanto had, after 11
years, withdrawn the rights to distribute the Roundup glyphosate weedkiller in
the region – an announcement which sent its shares plunging 12%.
On Wednesday, Monsanto revealed that it had switched the
contract to Sinochem, the state-controlled Chinese chemicals group with which
it has been building ties since forming a joint venture in hybrid seeds 12 years
Sinochem already sells Roundup in China and the Philippines
"Sinochem has been an excellent global partner and we
believe they will do an outstanding job serving our customers in Australia and
New Zealand through this new agreement," Mike Frank, the head of Monsanto's international
row crops and global vegetable business, said.
Sinochem, which in 2009 launched a failed Aus$2.6 attempt to
buy Nufarm, has built an Australian agrichemicals division largely around
former Monsanto staff.
Roger Angell, the Sinochem Australia managing director, a
former regional head for Monsanto. Richard Jagger, the Sinochem Australia commercial
manager, and Michael Summons, country leader for New Zealand, are also former
senior Monsanto staff.
Relations between Monsanto and Sinochem came under
particular scrutiny two years ago, when the two groups were revealed to be involved
in talks over strengthening ties, potentially through equity stakes or a larger
Monsanto was seen as seeking a fast track into the Chinese
market, and Sinochem access to the US group's seed technology, in a country
where yields lag far behind Western levels, although in which genetically
modified varieties have gained limited approvals.
PotashCorp, the Canadian fertilizer group, owns a stake in Sinochem's
listed nutrient subsidiary, Sinofert.
For Nufarm, the loss of the Roundup contract, worth roughly
$100m a year, represented "terrible timing" after the group last month lost
rights to sell agrichemicals made by Germany's BASF, broker RBS Morgans said.
However, RBS Morgans analyst Belinda Moore termed the slump
in Nufarm shares on Tuesday an overreaction given the potential for the group
to boost sales of its own glyphosate products - and indeed its potential to
become an acquisition target again.
"If Archer Daniels Midland is successful in taking over
GrainCorp, Nufarm will become the largest and most liquid agribusiness on the
ASX," Ms Moore said.
"Nufarm is also a potential target, with Sumitomo Chemical
owning 23% of the company."
Macquarie lifted its rating on Nufarm shares to "neutral"
from "underperform", with a price target of Aus$5.90, viewing Tuesday's
sell-off as "overdone", while Credit Suisse lifted its recommendation to "outperform"
Nufarm shares rebounded 6.4% to Aus$5.16 on Wednesday.