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Opinion: China bid for MA must be taken seriously

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Investors shouldn't underestimate ChemChina's chances of making it to the finish line with its latest target - Israel's MA Industries.

It's understandable that MA's investors didn't bet up shares in the agrichemicals group all the way to the 22 shekels or so implied by ChemChina's offer. The deal after all, is still a distance from the chequered flag, and Chinese bidders – including ChemChina itself – have a history of not staying the course.

But the discount of more than 20%, equivalent to nearly $650m, that investors have allowed for error, to judge by MA shares' closing price of 17.00 shekels, looks steep enough.

Experienced dealmaker

After all, the deal has already got the basic ingredients – a willing seller, in MA's top investor Koor Industries, a willing buyer, in the state-backed Chinese chemicals giant, and an agreed price of $2.72bn. It looks a decent price too, offering a premium of 60% to MA's share price before it was announced.

And it would be simplistic to think that just because the buyer is ChemChina that the takeover will not go through.

Sure, the group pulled out of a takeover of nearly exactly the same size, of Australia's Nufarm, three years ago. But that doesn't mean that ChemChina's boss, Ren Jianxin, is deal shy.

Over the last 20 years he has bought more than 100 state-owned enterprises in China. And he has succeeded in smaller deals abroad too. In 2006, his $1.4bn in acquisitions included Qenos, an Australian chemicals maker, and French animal feed company Adisseo too.

Indeed, having flunked with Nufarm, Mr Ren may be only the more keen to succeed with ChinaChem to prove he can make it with a sizeable foreign deal.

Political question

The bigger worry may be the risk of political intervention. Chinese suitors have found themselves unpopular in many countries, not least because of the barriers the country erects against its own assets falling into foreign hands.

That is one argument being used, for instance, by the lobby campaigning against plans for a Chinese purchase of a New Zealand dairy giant from receivership.

But in Israel, the case against China may not quite as clear cut as in some other countries. Israel may be loathe to risk distancing such a powerful nation, when it has so few friends at home.

Besides, the two countries have a history of co-operation, with Israel allegedly seen as a route some barred US goods, including military equipment, making their way to China.

Wider losses

That doesn't make the deal a no-brainer.

After all, MA also on Monday that it will report a widening third-quarter loss, although it does not yet know how much wider. That hardly inspires confidence that ChemChina won't fund something to dislike in MA's accounts.

But it does mean that ChinaChem's chances of success must be take seriously.

By Mike Verdin

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