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Opinion: Sinochem-Nufarm deal looks tricky

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The land down under is trying another attempt to turn the form book upside down.

Australia has done a pretty good job so far at keeping foreign bidders pouring in, despite global economic recession and domestic climatic risks.

If it isn't the Brits (Terra Firma) buying the Packers all but out of cattle ranching, it is the Canadians (Viterra) muscling into Australian cereals handling through the purchase of ABB Grain.

Now China's Sinochem has appeared on the doorstep, taking a pop at Nufarm, the agrichemicals giant.

Easy matches

This tie-up, however, looks a far more troubled bet.

The problem is the number of hoops a takeover would have to jump through.

One big advantage of the Packer and ABB deals was that they were struck between willing sellers and enthusiastic, and experienced, buyers.

It's not obvious that Sinochem-Nufarm ticks these boxes.

Troubled history

Chinese bidders have a habit of fluffing overseas bids - often thanks to intervention by foreign authorities, as famously scuppered CNOOC's potential investment in US Chevron, but not always.

Shareholders did for the Chinalco-Rio Tinto tie-up, while a series of proposals have foundered for unknown reasons, such as the failure of a China-led consortium to buy Nufarm two years ago.

While their record has improved recently, Sinochem hardly inspires confidence of being a winning suitor. Its successful purchases have tended to be relatively small – a Yemen oil operation for $465m last year, a South Korean refiner in 2005 for $552m.

Nufarm is a bigger catch, at some Aus$3.4bn (US$2.8bn) including debt.

Rathbone factor

And it is not clear that this fish wants to be fried. That matters when Nufarm's chief executive, Doug Rathbone, is also its biggest shareholder, with more than 11% of the stock.

It is difficult to determine exactly where he is taking the company.

Indeed, the group's recent record of a rights issue, a profits warnings, maybe another one and an approach revealed only under pressure from Australian authorities has led Credit Suisse to question "management/board integrity".

But to be sure, it would hurt Mr Rathbone to accept a bid near the current price of Aus$10.66 when the Aus$17.25 a share the Chinese were offering him two years values his stake Aus$160m higher.

Long list

Especially so when there are plenty of other deep-pocketed companies - including Monsanto and Syngenta – have in the past been rumoured as likely suitors too.

The Nufarm and Sinochem relationship may yet be the one to end in embrace. But do not expect the course of this affair to run smooth.


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