ChemChina to Buy Controlling Stake in Makhteshim-Agan

China National Chemical Corp. offered to buy a controlling stake in Makhteshim-Agan Industries Ltd., the largest maker of generic agricultural chemicals, in a deal valuing the Israeli company at $2.4 billion.

ChemChina, as the company is known, agreed to acquire 7 percent of Makhteshim from Koor Industries Ltd. and offered to buy all the publicly traded stock to bring its stake to 60 percent, Makhteshim said today. The purchase price, based on current dollar exchange rates and taking into account some employee options, is 19.98 shekels a share, or 18 percent more than the stock’s closing price in Tel Aviv yesterday.

Makhteshim, based in Airport City outside Tel Aviv, jumped 6.8 percent today. Surging demand for raw materials in China to power the world’s fastest-growing major economy has prompted companies to make acquisitions beyond oil and gas industries and explore takeovers of agriculture and chemical assets. State-owned Sinochem Group, China’s largest fertilizer trader, earlier this year considered a rival bid to BHP Billiton Ltd.’s $40 billion offer for Potash Corp., people with knowledge of the matter said in October.

“It looks like the deal is about to close and we believe this offer will be received by the shareholders because the Chinese are paying such a high premium,” Guil Bashan, an analyst at IBI in Tel Aviv, said by telephone. “This is good news for Makhteshim and for Koor.”

Market Share

Before today, Makhteshim had declined 6.6 percent this year. The stock rose 1.14 shekels to 18.04 shekels at the 4:30 p.m. close of trading in Tel Aviv, valuing the company at 7.85 billion shekels ($2.2 billion). Koor jumped 9.9 percent to 83.60 shekels.

Under the deal, Koor would receive a $960 million non-recourse loan, which will be backed by Makhteshim shares, and may be redeemed in cash or in shares. The loan means Koor “essentially has a put option on close to another $1 billion worth of Makhteshim shares because if it doesn’t want to pay back it can just pay with shares,” Bashan said.

Robert Lu, a spokesman for Beijing-based ChemChina, didn’t answer calls to his office. The transaction is likely to be completed by the third quarter of 2011, pending approval by Makhteshim shareholders and Chinese regulators, the Israeli company said.

Nufarm Fallout

China, home to more than 1.3 billion people, is the world’s largest consumer of foods including pork, soybeans and rice. The nation, set to pass Japan this year to become the second-biggest economy, became a net importer of corn in 2009 for the first time in 14 years after drought damaged crops. The city of Shanghai, with more than 20 million residents, has a population almost triple Israel’s.

ChemChina, the nation’s second-biggest chemical company, has 158.7 billion yuan ($24 billion) of assets, according to its website. The state-owned company, with 10 listed subsidiaries in industries ranging from pesticides to plastics, tried to buy Australia’s Nufarm Ltd. in 2007 to create the world’s largest supplier of generic farm chemicals before the deal collapsed.

Generic companies like Makhteshim produce copies of top-selling insecticides once patents have expired. Makhteshim, which sells its crop-protection products in more than 100 countries, has a 5 percent market share in the global crop-protection market, according to the company’s website. Its products include herbicides, insecticides, and fungicides. Makhteshim operates manufacturing plants in Israel, Brazil, Colombia, Spain and Greece.

Non-Recourse Loan

Basel, Switzerland-based Syngenta AG is the world’s biggest maker of agricultural chemicals.

Makhteshim, which posted losses in two of the past four quarters, said on Sept. 2 it canceled talks to buy U.S.-based Albaugh Inc. for about $1 billion. It has been looking to boost profit after insecticide prices declined because the global recession hurt demand for food.

Koor, which is controlled by Nochi Dankner’s IDB Holding Corp. and Discount Investment Corp., would own 40 percent of Makhteshim, according to today’s statement.

Israel and China established diplomatic relations in 1992. Israel’s biggest exports to China are agricultural technology and electronics, and its major imports from the country are machinery and textiles.

Until the Makhteshim agreement, Israel had been largely “under China’s radar” in terms of investment, said Ornit Avidar, a former commercial attaché at Israel’s consulate in Hong Kong, and now a partner at China Israel Value Capital, a private-equity fund in Herzliya, Israel.

The deal is significant because while “many foreigners take into account the political consequences of investing in Israel, the Chinese separate between politics and business,” she said.

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