Fertilizantes Heringer, one of Brazil’s top fertilizer distributors until seeking bankruptcy protection earlier this year, is poised to fall into Russian control, under a deal worth up to $115m with Uralchem and Uralkali.
Fertilizantes Heringer said that its top shareholder, Heringer Participacoes, which owns 51.5% of the group, had signed a “binding letter of intent” with the Russian fertilizer producers, which will see them take control of the Brazilian group.
Under the deal, Uralchem and Uralkali will invest $59m-115m in an issuance of new shares, or a mixture of new and existing stock, at a price of R$2 per share.
That represents a small premium to the closing price of R$1.90 that Heringer shares closed last week.
However, the stock jumped 22% to R$2.31 in early trading in Sao Paulo on Monday, indicating that investors believe that a better deal may lie ahead.
The deal - which is still subject to further talks, as well as agreement by antitrust authorities including Brazil’s Cade – follows seven months after Fertilizantes Heringer filed for bankruptcy protection, struggling under the weight of it debts.
The group had, as of the end of 2018, R$2.45bn in gross liabilities.
The company has closed plants and laid off many of its 3,000 staff in a bid to improve its finances, cutting its selling and administrative costs by 45% to R$28.4m for the April-to-June quarter.
However, revenues were also hit, as delivery volumes slumped by 83% year on year to 121,000 tonnes for the quarter, led by 93% plunge to 11,000 tonnes in deliveries for soybean fertilization.
Coffee nutrient volumes, down 44% at 24,000 tonnes, proved more resilient.
For Uralkali, the world’s top potash producer by output, and Uralchem, which specialises in nitrogen and compound fertilizers, the deal offers a chance to enter a Brazilian market which is hugely reliant for nutrients on imports, and in which US-based Mosaic and Norway’s Yara are leading foreign players.
Brazil’s fertilizer imports for the January-to-July period, reached 15.38m tonnes, up 13.7% year on year, according to industry group Anda
Domestic production for the January-to-April period, the latest data available, totalled 2.35m tonnes.
Uralkali and Uralchem have previously worked together in boosting sales to Africa, through initiatives in Kenya and Zimbabwe announced last year.
Uralkali is some 20% owned by Dmitri Mazepin, the Belarus-born Russian businessman linked earlier this year to a bid for the Williams motoring racing, and who also controls Uralchem.