Nufarm could win big from the mega agrochemical mash up

The world’s six biggest agrochemical companies are trying to merge with each other in deals valued at over $US200 billion, and this is creating potential opportunities for Nufarm (market value $2.1bn).

Bayer recently raised its bid for Monsanto to $US64bn and today the ACCC(Australian Competition and Consumer Commission) listed two other proposed deals on its mergers register for consideration by the middle of September.

The two deals — the $US43bn ChemChina bid for Syngenta and the $US133bn Dupont-Dow merger — have been on the books all year but have only just been listed locally.

This is probably for no other reason than that lawyers for the chemical giants have just got around to the Australian end of the deals, which face strong opposition in bigger markets like China, the US and Europe.

The ChemChina-Syngenta deal actually has minimal overlap, even though the combination would be the biggest agricultural chemical company in the world. That is until the Monsanto-Bayer deal is (if ever) consummated.

Nufarm (NUF) competes with all of the above in the local market as well as in its international operations which is exactly where the opportunities begin.

If divestments are required to pass the considerable antitrust hurdles that Greg Hunt at Nufarm and his best friend (and 23 per cent shareholder) Sumitomo may just be willing to chance their arms and step into the big league.

So far, it should be noted, Hunt has kept to his day job and hasn’t floated the idea of some big international assets but then the merger partners are really just getting to square one at this stage of the game.

The reason for the global mergers is similar to why many local companies would like to pursue the same strategy, namely, tepid growth for the foreseeable future means earnings are stuck in a rut so merger synergies are seen as the next great hope.

Low oil prices have also squeezed chemical margins further.

Aside from the fact that most big global mergers fail, the logic for the deals is clear and their impacts are wide reaching.

The ChemChina-Syngenta deal would be the biggest yet by a Chinese company and given the Swiss companies market strength in Australia, the US and elsewhere, there are obvious food security issues.

Dow and DuPont control a massive 41 per cent of all corn seeds sold in the US and their related generic brethren.

The Bayer-Monsanto deal controls 90 per cent of all soybeans sold in the US and all of the majors package seeds with crop protection chemicals as a bundle which restricts competition further.

The ACCC will take its lead from its offshore comrades but in the meantime Nufarm’s Greg Hunt has some planning to do.