Nufarm Limited ("Nufarm") today announced it had entered into an agreement to sell its South American crop protection and seed treatment operations in Brazil, Argentina, Colombia and Chile ("Nufarm South America") to Sumitomo Chemical Company Limited ("Sumitomo") for $1,188 million cash (on a cash-free, debt-free basis and subject to customary net working capital adjustments on completion) ("Transaction").
Nufarm has also extended its existing commercial agreements and entered into new commercial arrangements with Sumitomo.
Nufarm Managing Director and CEO, Greg Hunt, said, “We have a very capable management and commercial team in South America who have built a strong distribution network and loyal customer base. This is reflected in the growth and stabilisation of earnings in the business over the past five years.
“This Transaction represents compelling value for Nufarm shareholders and will provide an opportunity to refocus on other parts of the business where we can generate higher margins and stronger cash flow.
"The significant reinvestment we have made in our European, Nuseed and North American businesses in recent years, along with the next phase of transformation in our Australian business, is expected to deliver earnings growth and improved returns for shareholders in the coming years."
Mr Hunt confirmed Nufarm’s relationship with Sumitomo would be further strengthened by the proposed agreement. “Our commercial relationship with Sumitomo provides access to an attractive portfolio of proprietary products and will continue to be an important contributor to our growth. Today’s agreement extends the term of our existing relationship and provides new opportunities to build on our expanding product portfolio in Europe.”
Sumitomo Chemical Executive Vice President, Ray Nishimoto, commented, “Nufarm has built a strong distribution network in South America and this Transaction will realise value for shareholders in both companies. We look forward to continuing our long-term relationship with Nufarm as a strategic partner and major shareholder.”
Mr. Nishimoto also confirmed Sumitomo’s intention to nominate Mr. Toshikazu Takasaki for reelection to the Nufarm Board to continue to represent the interests of Sumitomo Chemical Company as a substantial shareholder in Nufarm. Proceeds from the Transaction will be used to pay down debt.
Nufarm will also undertake a review of corporate costs following completion of the Transaction to generate future savings.
Nufarm post the Transaction
Following the Transaction, Nufarm will operate a diversified global crop protection business and a fast growing, proprietary seed technology business with an attractive omega-3 canola commercialisation opportunity.
The crop protection business will focus on the major agricultural markets of Europe, North America and Asia Pacific with a diverse portfolio of herbicide, insecticide and fungicide products to address growers’ needs across the crop lifecycle.
Nufarm has a growing market share in high-margin crop protection markets in Europe. The acquisition of new product portfolios in 2018 significantly expanded Nufarm’s customer offer and the opportunity to be Sumitomo's preferred partner for the distribution of new proprietary fungicide products will further enhance Nufarm's future European market position and earnings. Recent investments in technology systems and regional sales and management teams, combined with the transition of supply arrangements for the acquired portfolios to Nufarm control, are expected to support improved returns for Europe in the coming years.
Nufarm has a leading market position in the US turf and ornamental market and is increasing its share in the crop protection markets across the US and Canada. This is supported by a strong pipeline of new product development and recent investment in a new formulation facility in Greenville, Mississippi, that will support growth into important cropping regions in the south-eastern US states.
The Asia Pacific business includes the Australian business in which Nufarm has a longstanding number one market position. This market provides significant earnings upside exposure when the industry recovers from the impact of two years of extreme drought conditions. Nufarm expects to generate additional benefits as the next phase of its performance improvement program are realised. In addition, the Indonesian business is a strong base for the Asian operations, which are increasingly diversified with growth into new countries and crops.
Nufarm’s seed technology business combines the seed treatment portfolio and the Nuseed business. Seed treatment is sold in all regions and sales relating to the South American businesses will be transferred to Sumitomo as part of the Transaction. The acquisition of the nematicide, TrunemcoTM, in 2019 is expected to support sales and earnings growth in North America in coming years and Australian sales are expected to increase as weather conditions improve.
With customers in more than 30 countries, Nuseed is a fast growing, high margin seeds business with growing market positions in canola, sunflower and sorghum. Nuseed applies its leading molecular capability, global genetics and industry collaboration to develop unique plant output traits with consumer benefits, such as omega-3 canola. First sales of Nuseed’s proprietary omega-3 canola product, Aquaterra, are on track for the 2020 financial year and this product is expected to contribute positively to earnings from the 2021 financial year.
Nufarm will have a strong balance sheet and simplified financing arrangements, including a net debt level that addresses inherent industry volatility and supports the continued growth of the business.
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