ChemChina to buy 60 percent of Israel's MA Industries

TEL AVIV Tue Dec 28, 2010 9:58am EST

A rainbow is seen behind crops near Helford, on the coast of Cornwall in south west England on August 29, 2008. REUTERS/Toby Melville

A rainbow is seen behind crops near Helford, on the coast of Cornwall in south west England on August 29, 2008.

Credit: Reuters/Toby Melville

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TEL AVIV (Reuters) - China National Chemical Corp (ChemChina) plans to buy 60 percent of Israel's MA Industries MAIN.TA in China's latest move to expand in the global agricultural chemicals market.

The deal, which values the world's biggest maker of generic crop protection chemicals at $2.4 billion, would see MA parent company Koor Industries KOR.TA retain 40 percent of the maker of fungicides, pesticides and herbicides.

ChemChina will buy the 53 percent of MA held by the public for $1.272 billion and pay Koor $168 million for another 7 percent, the companies said on Tuesday.

Koor, which also owns 3.24 percent of Credit Suisse (CSGN.VX), will post a capital gain of 149 million shekels ($42 million) from the sale, which is priced at 19.98 shekels a share at the present exchange rate.

This reflects an 18 percent premium to Monday's closing price of 16.9 shekels.

Shares in MA, the world's No. 7 agrochemicals maker, surged 7.5 percent to 18.17 shekels in afternoon trade in Tel Aviv. Koor shares were up 6.6 percent.

As part of the deal, ChemChina is expected to arrange a seven-year non-recourse loan of $960 million to Koor, which will be secured by Koor's shares in MA.

"We think Koor is guaranteeing itself a bottom for the valuation of MA, since in seven years it can choose not to pay back the loan and forfeit the shares, while it's getting the money now," Noam Pincu, an analyst at brokerage Psagot said.

Koor, controlled by Discount Investment Corp (DISI.TA), a subsidiary of conglomerate IDB Holding Corp (IDBH.TA), did not say what it intends to do with the funds but Pincu said he believes it will distribute a substantial dividend.

Koor said it expects to sign the agreement with ChemChina within about two weeks and the deal is expected to close in the second or third quarter of 2011, though it added there is no assurance it will be completed.

MA, which competes with Monsanto (MON.N), Bayer BAYG.DE and Syngenta (SYNN.VX), ultimately will become private.

PRICE OF DEAL LOWERED

The deal is the latest in a hungry China's search for global agricultural chemical production and distribution capabilities, areas that would cost a lot of money and take time to be developed domestically.

ChemChina and Sinochem (600500.SS), both state-run companies, have each made failed bids for Australian farm chemicals group Nufarm (NUF.AX).

In October, Koor announced ChemChina was in talks to buy 70 percent of MA at a company valuation of $2.7 billion but a month later the Chinese company sought to reduce the valuation to $2.4 billion. The two sides also discussed ChemChina buying a smaller stake from Koor than originally planned.

"We believe the chances now of the ChemChina deal going ahead are very high, at a lower price than was originally announced," Bank Hapoalim analyst Yaron Fridman said.

"The price reduction was necessary due to the significant worsening of MA's results in the second half of 2010."

MA, also known as Makhteshim Agan, posted a wider net loss of $56.2 million in the third quarter, hit by a writedown at its Brazilian unit, rising costs and a one-off tax charge.

The transaction is subject to approval of MA's shareholders and government authorities in China.

ChemChina will sign with Koor a shareholders' agreement organising their rights in MA, including nomination of directors on a proportional basis. ChemChina will be obligated to remain the largest shareholder in MA for a number of years, and Discount Investment will commit not to sell control in Koor for at least three years.

In September, MA halted talks to acquire U.S. firm Albaugh for about $1 billion, blaming its findings during due diligence.

($1 = 3.57 shekels)

(Editing by Hans Peters)

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