Adama Agricultural Solutions Ltd. (TASE: ADAMA), which produces agricultural pesticides, is one step closer to being merged into Chinese company Sanonda, listed on the Shenzhen Stock Exchange. Adama reported today that a business outline had been submitted to the Shenzhen Stock Exchange, following approval by the Sanonda board of directors. Trading in the Sanonda share is accordingly slated to resume in the coming days, after having been halted more than a year ago due to the negotiations for a merger with Adama.
Adama management expects the deal to be completed by the end of June 2017, subject to implementation of agreements and obtaining regulatory and corporate approvals. Before then, Adama's shareholders - Chinese company ChemChina and Israel company Discount Investment Corporation (TASE: DISI) - will have to complete the deal between them, in which ChemChina acquires Discount Investments' stake in Adama, becoming the sole owner of the company.
According to the outline submitted to the Shenzhen Stock Exchange, the value of Adama was assessed at $2.8 billion, lower than the $3.5 billion value at which ChemChina will acquire Discount Investment's stake in the company, but higher than the value at which Adama unsuccessfully tried to offer its shares in New York two years ago.
The lower value for Adama was required by the independent directors on the board of Sanonda (also controlled by ChemChina). ChemChina agreed, because it already holds the shares of both companies, and sees great potential in the merger.
Sanonda itself is valued at $760 million in the deal - its most recent market cap before trading in the share was halted. The deal will also include a private placement of 9% of the shares in the merged company (which will be named Adama) for the China Sinda Asset Management group for an investment of 2.5 billion yuans ($380 million). This investment is for financing the construction of the formulation facility in China, development of distribution infrastructure in China, obtaining a global license for worldwide marketing of Sanonda's product, and other investments in fixed assets.
With the addition of the capital investment, the pro forma value of the merged company will be $4 billion, and its enterprise value (EV) will be $5 billion. 75% of the merged company's shares will be held by ChemChina, 9% by Sanonda, and the rest by Sanonda's current public shareholders.
Adama's management, headed by Chen Lichtenstein, will continue leading the merged company. Lichtenstein said that the deal would create the world's only global Chinese agrochemical company, which would be the largest company in this sector in China and the first global agrochemical company listed on a stock exchange in China. "From the beginning of our partnership with ChemChina five years ago, we all made great efforts to plan and carry out our joint strategic vision - to create a unified global Chinese company. Adama plans to invest the capital raised in accelerating its growth, both worldwide and in China," Lichtenstein emphasized.
Sanonda is a Chinese company with two types of shares. Its A shares are traded in Chinese yuans, and its B shares are traded in Hong Kong dollars (both types of share are traded in Shenzhen). This situation will ostensibly enable the board of the merged company to covert Type B shares to Type A shares in the future, and list them for trading in Hong Kong. Lichtenstein notes that the Chinese agrochemical market is the third largest in the world, with $5.4 billion in annual sales (as of 2015) and an average annual growth rate of 8% (the world's highest). The market is projected to reach $6.5 billion by 2020. According to Lichtenstein, no company currently has a share of over 10% in the Chinese agrochemical market, and the aggregate market share of all the foreign agrochemical companies operating in China is 23%.
Lichtenstein says that Adama is in the midst of building its commercial business in China. More than 100 new salesmen have already been hired, and they are now establishing the company's direct presence in 19 Chinese provinces, and marketing Adama's basket of products. In addition, dozens of salesmen from agrochemical companies like ChemChina (of which Sanonda is the largest) have joined Adama sales system. After the deal is completed, the two companies' activities in China will be connected to the consolidated sales platform.
Published by Globes [online], Israel business news - www.globes-online.com - on September 14, 2016
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