Yara International ASA (YAR), the largest publicly traded nitrogen-fertilizer maker, agreed to purchase Bunge (BG) Ltd. operations in Brazil for $750 million as it pursues a 33 percent production increase in four years from 2010 levels.
Yara sees annual synergies of at least $25 million from the cash deal, the Oslo-based company said in a statement today. Bunge has 22 blending units in Brazil that produced 4.8 million metric tons of fertilizers in 2011, Yara said. Bunge had revenue of $2.65 billion from the business and adjusted earnings before interest, taxes, depreciation and amortization of $77 million.
Industry producers are seeking acquisitions as the cost of raw materials increases and higher food prices spur farmers to plant more crops, boosting consumption of fertilizers. World demand is poised to climb 3 percent to a record in the 2011-12 season, driven by “attractive” crop prices, the International Fertilizer Industry Association said in February.
“It’s a great fit,” Per Haagensen, an analyst at Fondsfinans ASA in Oslo, said by phone. “The pricing is 10 times Ebitda on an historical basis but the synergies are massive, far higher, I think than the $25 million indicated.”
The purchase includes Bunge’s Brazil blending facilities, brands and warehouses, the companies said in statements.
Yara rose 1 percent to 283.2 kroner by 2:15 p.m. in Oslo, the second biggest gainer on the benchmark OBX Index of stocks after Aker Solutions ASA. (AKSO) The OBX Index was down 0.4 percent.
Bunge, the world’s second-largest oilseed processor, based in White Plains, New York, and Yara have agreed to a long-term fertilizer supply accord, enabling the U.S. company to continue to provide fertilizer to farmers. Bunge will retain and operate its fertilizer terminal at the port of Santos.
“Brazil is a key growth market where there is significant further potential for acreage and yield increases,” Yara Chief Executive Officer and President Joergen Ole Haslestad said. “Today’s agreement also creates a strong platform for future growth opportunities within the Brazilian fertilizer industry.”
Yara plans an 8 million ton increase in sales of its own and joint venture production between 2010 and 2016 from 24.5 million tons, according to slides from the company’s capital markets day this week. Its growth plans include “significant” mergers and acquisitions activity, the company said Dec. 4. The Norwegian group will carry out all M&A without issuing new equity except for the “very largest” acquisitions, it said.
The deal “proves that Yara will deliver on its growth ambitions,” Eirik Vegem Dahle, a Pareto Securities AS analyst, wrote in note. It provides Yara “with a solid base in one of the most attractive and fastest growing fertilizer markets.”
The transaction comprises $385 million in net operating capital value and $365 million in other assets, Yara said.
Credit Suisse Group AG advised Bunge on the deal, which is expected to close in the second half of 2013, Bunge said.
Yara may buy the remaining stake in an Australian ammonia plant from U.S. energy group Apache Corp. (APA) to boost output of the raw material, Haslestad said in a Dec. 4 interview. The company, which controls 51 percent of the Yara Pilbara plant in Western Australia state, says it may buy the interest it doesn’t already own as long as the valuation is considered reasonable.
Yara spent $143 million raising its stake in the operation to 51 percent from 35 percent in February and Houston-based Apache paid $439 million for 49 percent after receivers were appointed to former operator Burrup Holdings Ltd.
Apache hired Citigroup Inc. to sell its 49 percent stake, and may attract interest from buyers including Incitec Pivot Ltd. (IPL) and Agrium Inc. (AGU), the Australian Financial Review reported on Nov. 13, citing people it didn’t identify. The sale may be worth more than $400 million, the newspaper said.
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