Sinochem in A$2.8bn offer for Nufarm

Chinese largest takeover of an Australian company took a big step forward yesterday when Sinochem launched a A$2.8bn (US$2.4bn) cash offer for Nufarm, the agricultural chemicals maker.

Sinochem, a Chinese chemicals trading business, has been courting Nufarm for months and the parties have now agreed to hold exclusive talks on a A$13-a- share deal while it conducts due diligence until early December.

The offer comes just over a month after Sinochem agreed to buy London-listed Emerald Energy, an oil exploration and production company, for £532m ($845m).

Nufarm said that if it could reach agreement with the Chinese state-backed group in the coming months, it would recommend the offer to shareholders. However, a successful takeover must be cleared by Australias Foreign Investment Review Board which has knocked back at least two transactions this year that involved Chinese groups buying resource assets.

The Australian regulator last week said Canberra had a clear preference for foreign investments in its large companies to be kept below 15 per cent although that view is probably more relevant for big resources companies rather than industrial companies such as Nufarm.

Should the deal be approved, data provider Dealogic said Sinochems offer would take the value of Chinese acquisitions in Australia to a record US$12.5bn in 2009, more than four times higher than for the calendar yea 2008.

Sinochem said buying Nufarm would accelerate its strategy to become a global company in the crop protection industry.

Nufarm is one of the worlds largest "off-patent" agricultural chemical manufacturers with a presence in Australasia, Europe and the Americas. Analysts said the business would be attractive as demand for agricultural chemicals to protect crops rose on the back of population growth.

The Sinochem offer was pitched at a 17 per cent premium to Nufarms last traded price of A$11.14. News of the offer sent Nufarm shares up more than 7 per cent to A$11.96.

Although Chinese take-over interest in Australia has been focused on resour-ces companies, Nufarm has for years been in the sights of Chinas chemicals groups.

In 2007, China National Chemical Corporation, in partnership with US buy-out group Blackstone, made an aborted A$3bn bid for Nufarm . That proposal failed after the two sides said they were unable to reach a deal before an exclusivity period ended.

Nufarm yesterday forecast that market conditions would improve in 2009-10 after it reported a 42 per cent drop in full-year net profits to just below A$80m. The company was hit by falling prices and demand for glyphosate, a herbicide which is its key product.

Nufarm is being advised by UBS, with Royal Bank of Scotland acting for Sino-chem.