Crop protection company Adama Agricultural Solutions, formerly Makhteshim Agan, announced today that it has signed a definitive agreement to acquire the Chinese businesses of ChemChina’s China National Agrochemical Corporation (CNAC) for $324 million in cash, with assumed net debt of approximately $300 million.
Adama is 60% owned by ChemChina, a state-owned enterprise; and 40% by the Israeli shareholding company IDB.
The acquired businesses had 2013 sales of approximately $850 million, Adama says. Through the acquisition, Adama will acquire 100% of each of Jiangsu Anpon, Jiangsu Maidao, Jiangsu Huaihe (collectively called the Huai’an Hub), and Jingzhou Sanonda Holdings (Sanonda Holdings). The Huai’an Hub is based in the vicinity of Huai’an City, Jiangsu Province, the heart of the agrochemical industry in China. Sanonda Holdings owns a 20% stake in Hubei Sanonda (Sanonda), a company publicly traded on the Shenzhen Stock Exchange, and its acquisition by Adama will increase Adama’s existing stake in Sanonda from 11% to 31%, making Adama the single largest shareholder in the company.
Once finalized, the acquisition is expected to raise the Adama’s sales to close to $4 billion and give the company a major foothold in the Chinese market, which is expected to become one of its key growth engines.
“This transaction marks the realization of the vision set forth in our acquisition of a majority stake in Adama in 2011,” says Adama chairman Yang Xingqiang. “We believe there is remarkable potential emanating from the combination between Adama and the Chinese businesses it is acquiring. These businesses are key players in the Chinese agrochemical industry, and we believe they will provide Adama with a significant foundation for a leading commercial and operational platform in China. When combined with Adama’s industry leading capabilities across the entire value chain, from its global commercial footprint to R&D and manufacturing, this combination holds great promise, over time, to improve and simplify the lives of farmers in China and worldwide.”
Adama is the world’s largest generic crop protection player. The transaction is expected to close during the first half of 2015, following Adama’s previously announced initial public offering in the United States.
Adama says the deal will “establishing a robust foundation for a leading commercial platform” in the Chinese market. Adama intends to use its global registration, marketing, and distribution know-how and expertise to gradually build-up the development, registration, and distribution capabilities of the Chinese businesses it is acquiring into a leading Chinese domestic commercial platform.
The acquisition also enhances Adama’s ability to develop and launch advanced, off-patent products and provides the company with access to a competitive, backward-integrated cost position in certain key pesticide molecules it currently purchases from third parties.
Adama also intends to use its global distribution channels to expand sales of various products that the Chinese businesses currently export through third parties.
“Given the industry and Adama’s growing proportion of products that are either produced or procured in China, creating a global production, formulation, packaging, and logistics center in China is expected to provide the most appropriate location for optimizing operations and shortening supply lines, thereby increasing flexibility and reducing inventory and working capital, shipping, and other logistics costs,” Adama says.
Adama says it has broken ground on a new formulation center in Huai’an City, Jiangsu Province, to support building up its commercial and operating infrastructure in China, as well as globally. The new center will serve as a manufacturing facility for advanced and unique formulations and mixtures. The center will increase the company’s global formulation capacity and is planned to commence operations as early as 2016.
According to Adama, China has 20% of the world’s population but only 7.0% of the world’s arable land and 6.6% of global freshwater resources, placing a “tremendous strain” on its agricultural resources and increasing demand for the yield-enhancing benefits that crop protection products provide to farmers. However, the crop protection market in China is highly fragmented with relatively limited penetration by the leading global providers, resulting in even the market leaders having relatively low market shares compared with other markets worldwide, Adama adds.
Over recent decades, China has become the leading location for product launches and manufacturing for the global crop protection industry, from sourcing of raw materials and chemical intermediates to synthesizing active ingredients and formulation of finished products. According to CCM, China is now the world’s largest pesticides producer, manufacturing more than 350 different active ingredients.
According to the National Bureau of Statistics of China, China produced a total of 3.2 million tons of pesticides in 2013. Of this, approximately 50% is exported, making China the world’s largest exporter of crop protection products. Jiangsu—the province in which the Huai’an Hub is located—in particular has emerged as the leading manufacturing area in China for the global pesticides industry and is home to 31 of the top 100 Chinese pesticides manufacturers.
By Rebecca Coons
