Lankan Ranger
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Israel business: Chinese move
China's global company-shopping spree has arrived at the Israel aisle. State-owned China National Chemical on October 11th offered to buy control of Makhteshim Agan Industries in a deal valuing the agrochemicals manufacturer at US$2.7bn.
The bid reflects the growing interest of Chinese firms in tapping into Israel's R&D expertise and strong international distribution networks.
ChemChina agreed to buy 17% of Makhteshim from Koor Industries, which is part of Israel's IDB Group conglomerate, and to make a tender offer for Makhteshim's shares held by the investing public and traded on the Tel Aviv Stock Exchange (TASE).
If completed - and negotiations are still in their early stages -this deal will result in ChemChina holding 70% of Makhteshim and Koor the remainder, with ChemChina having an option to buy Koor's holding at a later date.
ChemChina's offer places a rich valuation on Makhteshim, the world's biggest maker of generic agrochemicals (pesticides and herbicides that have gone off patent) and its seventh-largest farm chemicals company. At NIS21 a share, existing shareholders would receive a 60% premium over Makhteshim's share price the day before the acquisition was announced.
Looking beyond IT
There has been much talk in Israeli business circles about merging Israeli technological prowess with China's manufacturing efficiency. The talk seems finally to be translating into action. Last February China made its first foray into Israel's start-up sector long a hunting ground for multinationals seeking cutting-edge technology -- when Yifang Digital Technology acquired Pegasus Technologies.
Newspaper reports say that Huawei, China's biggest maker of phone equipment, has quietly opened an R&D center in Israel and, more recently, the Calcalist financial daily said that both Huawei and another Chinese telecommunications equipment maker, ZTE, are bidding to buy Israel's troubled Comverse Technologies.
The Makhteshim deal highlights that Chinese interest extends beyond IT and this was confirmed a week later, when Israel's Strauss Group which is a distinctly 'old economy' player -- said it had formed a tie-up with the Chinese appliance maker Haier to sell water-filtering systems in China employing Israeli technology.
The potential for China-Israel cooperation, however, is constrained by geo-politics. By blocking the sale of Israeli AWACS aircraft to China in 2000, the U.S. put up a high barrier to Sino-Israel defence deals.
Chinese officials are almost certainly cautious about investing heavily in Israel, given their much more extensive interests in the Arab Middle East. Thus, while Israeli exports to China have doubled so far this year, much of that is due to shipments from the new Intel fabrication plant in Israel.
Short cut to catch up
ChemChina, a behemoth whose product line covers almost the entire spectrum of chemicals products, has made clear that it aims to expand out of its home territory by buying market share, distribution channels and technology around the world.
Since the company was created in 2004 by merging several chemical firms spun off from the Ministry of Chemical Industry, ChemChina has a long, if not always successful, history of foreign acquisitions, including Adisseo, the silicone operations of Rhodia, both French firms, and Australian polyethylene producer Qenos.
"We position ourselves as a latecomer and follower in the international chemical industry while viewing global M&A as a shortcut for us to catch up with the world leaders," its president, Ren Jianxin, told the McKinley Quarterly in a 2008 interview.
Makhteshim not only offers ChemChina efficient and experienced R&D and licensing operations but strong market positions and distribution in Europe and Latin America. Europe comprised almost half of the company's sales in January-June 2010, followed by North and South America. Asia is its fastest-growing market, led by India, whilst the domestic market accounts for less than 4%.
Hard slog
Nevertheless, Makhteshim has been through a rough patch. Tough market conditions caused sales to fall last year, and they only recovered slightly in the first half of 2010. The same day it announced the ChemChina bid, Makhteshim also disclosed that it would post a surprise third-quarter loss.
Earnings before interest, taxes, depreciation and amortization (EBIDTA) fell to $217m last year, less than half the level in 2008, although they showed some recovery in the first half of this year.
Meanwhile, the company's overseas expansion drive stalled when a proposed US$1bn acquisition of the U.S. generic agrochemicals maker Albaugh collapsed last summer. That left Makhteshim bereft of alternative acquisition candidates and increased the odds that IDB would look for a purchaser. If Makhteshim couldn't swallow the competition in a consolidating industry, it had no choice but to be swallowed.
Not yet in the bag
But the ChemChina acquisition is also by no means certain, according to most analysts. A 2007 bid by the company for Australia's Nufarm, another generic agrochemicals concern, was aborted when the Chinese company reportedly failed to arrange the financing.
Its generous valuation for Makhteshim may not stand the test of due diligence and/or the scrutiny of ChemChina's American partners, the Blackstone buyout fund, which has a 20% stake in the ChemChina unit buying Makhteshim.
Although the deal so far hasn't raised the same kind of nationalist hackles that Chinese acquisitions have elsewhere, such as Bright Food's offer for Britain's United Biscuits, unions representing Makhteshim workers are threatening to strike in protest.
However, if ChemChina can clear these hurdles, its timing may prove to be good. As global commodities prices rise, encouraging growers to increase acreage, the outlook for Makhteshim's crop-protection business is looking better for 2011.
CommonWealth Magazine
China's global company-shopping spree has arrived at the Israel aisle. State-owned China National Chemical on October 11th offered to buy control of Makhteshim Agan Industries in a deal valuing the agrochemicals manufacturer at US$2.7bn.
The bid reflects the growing interest of Chinese firms in tapping into Israel's R&D expertise and strong international distribution networks.
ChemChina agreed to buy 17% of Makhteshim from Koor Industries, which is part of Israel's IDB Group conglomerate, and to make a tender offer for Makhteshim's shares held by the investing public and traded on the Tel Aviv Stock Exchange (TASE).
If completed - and negotiations are still in their early stages -this deal will result in ChemChina holding 70% of Makhteshim and Koor the remainder, with ChemChina having an option to buy Koor's holding at a later date.
ChemChina's offer places a rich valuation on Makhteshim, the world's biggest maker of generic agrochemicals (pesticides and herbicides that have gone off patent) and its seventh-largest farm chemicals company. At NIS21 a share, existing shareholders would receive a 60% premium over Makhteshim's share price the day before the acquisition was announced.
Looking beyond IT
There has been much talk in Israeli business circles about merging Israeli technological prowess with China's manufacturing efficiency. The talk seems finally to be translating into action. Last February China made its first foray into Israel's start-up sector long a hunting ground for multinationals seeking cutting-edge technology -- when Yifang Digital Technology acquired Pegasus Technologies.
Newspaper reports say that Huawei, China's biggest maker of phone equipment, has quietly opened an R&D center in Israel and, more recently, the Calcalist financial daily said that both Huawei and another Chinese telecommunications equipment maker, ZTE, are bidding to buy Israel's troubled Comverse Technologies.
The Makhteshim deal highlights that Chinese interest extends beyond IT and this was confirmed a week later, when Israel's Strauss Group which is a distinctly 'old economy' player -- said it had formed a tie-up with the Chinese appliance maker Haier to sell water-filtering systems in China employing Israeli technology.
The potential for China-Israel cooperation, however, is constrained by geo-politics. By blocking the sale of Israeli AWACS aircraft to China in 2000, the U.S. put up a high barrier to Sino-Israel defence deals.
Chinese officials are almost certainly cautious about investing heavily in Israel, given their much more extensive interests in the Arab Middle East. Thus, while Israeli exports to China have doubled so far this year, much of that is due to shipments from the new Intel fabrication plant in Israel.
Short cut to catch up
ChemChina, a behemoth whose product line covers almost the entire spectrum of chemicals products, has made clear that it aims to expand out of its home territory by buying market share, distribution channels and technology around the world.
Since the company was created in 2004 by merging several chemical firms spun off from the Ministry of Chemical Industry, ChemChina has a long, if not always successful, history of foreign acquisitions, including Adisseo, the silicone operations of Rhodia, both French firms, and Australian polyethylene producer Qenos.
"We position ourselves as a latecomer and follower in the international chemical industry while viewing global M&A as a shortcut for us to catch up with the world leaders," its president, Ren Jianxin, told the McKinley Quarterly in a 2008 interview.
Makhteshim not only offers ChemChina efficient and experienced R&D and licensing operations but strong market positions and distribution in Europe and Latin America. Europe comprised almost half of the company's sales in January-June 2010, followed by North and South America. Asia is its fastest-growing market, led by India, whilst the domestic market accounts for less than 4%.
Hard slog
Nevertheless, Makhteshim has been through a rough patch. Tough market conditions caused sales to fall last year, and they only recovered slightly in the first half of 2010. The same day it announced the ChemChina bid, Makhteshim also disclosed that it would post a surprise third-quarter loss.
Earnings before interest, taxes, depreciation and amortization (EBIDTA) fell to $217m last year, less than half the level in 2008, although they showed some recovery in the first half of this year.
Meanwhile, the company's overseas expansion drive stalled when a proposed US$1bn acquisition of the U.S. generic agrochemicals maker Albaugh collapsed last summer. That left Makhteshim bereft of alternative acquisition candidates and increased the odds that IDB would look for a purchaser. If Makhteshim couldn't swallow the competition in a consolidating industry, it had no choice but to be swallowed.
Not yet in the bag
But the ChemChina acquisition is also by no means certain, according to most analysts. A 2007 bid by the company for Australia's Nufarm, another generic agrochemicals concern, was aborted when the Chinese company reportedly failed to arrange the financing.
Its generous valuation for Makhteshim may not stand the test of due diligence and/or the scrutiny of ChemChina's American partners, the Blackstone buyout fund, which has a 20% stake in the ChemChina unit buying Makhteshim.
Although the deal so far hasn't raised the same kind of nationalist hackles that Chinese acquisitions have elsewhere, such as Bright Food's offer for Britain's United Biscuits, unions representing Makhteshim workers are threatening to strike in protest.
However, if ChemChina can clear these hurdles, its timing may prove to be good. As global commodities prices rise, encouraging growers to increase acreage, the outlook for Makhteshim's crop-protection business is looking better for 2011.
CommonWealth Magazine
