BREAKFAST DEALS: Nufarm trumped

Sinochem's latest moves haunt Nufarm, while Mesoblast gets a much-needed cash reserves boost.

Nufarm boss Doug Rathbone may rightly be playing the down significance of losing the Monsanto Roundup distribution deal, but losing it to former suitor Sinochem has to sting a little. Mesoblast’s capital raising was a little bigger than anticipated, but it simply reflects the realities of the Australian experience for biopharma companies. Meanwhile, Nine’s reportedly talking to WIN as well as Southern Cross, Qantas is thought to be eyeing some cheap cargo carriers and the sharemarket rally could be coaxing two big, long anticipated block sales out.

Nufarm, Sinochem, Monsanto

Losing a lucrative distribution contract is one thing. Losing it to your former suitor, which once offered twice what your market cap is today, is another.

That’s a grossly unfair way of characterising the situation at Nufarm, but that’s how it first appeared things had turned out. China’s Sinochem has come back to haunt the ASX-listed agrichemical player.

Nufarm lost its exclusive distribution rights deal with US giant Monsanto for weed-killer Roundup. 60 per cent of Nufarm’s glyphosate sales – and it controls 50 per cent of the Australian market – go through Roundup.

Losing the contract looked like a big deal. The share price plunged around 12 per cent to its lowest close since June last year, while the benchmark index is up 27 per cent since then.

Minutes after the market closed chief executive Doug Rathbone calmed things down by explaining that the glysophate market has become "increasingly competitive” and suppliers are getting less bang for their buck.

"The brand premium attached to Roundup has consequently been eroded and we will now focus our ongoing investment in glyphosate on Nufarm’s own brands where we can build long-term value on a more secure basis and ensure our cost competitiveness,” said Rathbone, adding that the news was not expected to have a material impact on earnings.

Consequently, Nufarm shares recovered about half the losses from the previous session as investors contemplated not just Rathbone’s analysis. Is this another sign of a shift in a boom in hard commodities to soft commodities?

Then it emerged that Monsanto had handed that contract to former Nufarm suitor Sinochem, which boasts three former Monsanto executives for its Australian division.

Nufarm knocked back Sinochem’s $2.6 billion takeover back in December 2009, instead securing a 20 per cent shareholding for Japan’s Sumitomo and launching a $250 million capital raising.

While Nufarm’s present $1.3 billion market cap might make that decision look like a bad idea in hindsight, it’s worth remembering that Sinochem dropped its bid from $13 a share to $12, presumably because they believed Nufarm had no choice but to accept the offer. Glysophate prices were falling out of the sky at the time.

Additionally, back in 2009 reducing an offer price after due diligence – and Sinochem took their time – was seen as very brash. It’s still an unusual practice now, but less so, particularly for bidders who have cash.

While the final destination of Monsanto’s contract is to some extent irrelevant, the fact that it’s Nufarm’s old suitor could become an important piece of history if Sinochem can really assert itself in the Australian market.

Then again, as one of Australia’s last remaining listed agribusiness-related companies, in an industry that’s feeling more bullish, many analysts believe Nufarm is a takeover target.

Elsewhere in the rural sector, media reports indicate that debt stress expert Hamilton Securities is contemplating a counter offer for the forestry assets of rural services company Elders.

Elders had done a deal to sell the sandalwood timber assets of the Ord River region in Western Australia to Santanol, which has some neighbouring sandalwood assets.


Stem cell research company Mesoblast surprised the market with a larger than expected $170 million institutional placement, boosting its cash reserves to $332 million.

For a company that just recently booked half-yearly revenue of $14 million, down 22 per cent, that’s a lot of cash for chief executive Silviu Itescu to have sitting out back.

But Mesoblast is currently developing three products, including a stem cell-based treatment for congenital heart disease. The aim of the game is to get the product past the powerful US Food and Drug Administration. But development costs money – a lot of it.

Recently, Australian biopharma companies have fallen into a familiar trap of either failing to persuade the FDA, or not having the funds to mount a significant campaign.

On March 18, ASX-listed Pharmaxis is likely to discover that the FDA has refused Bronchitol, which aims to treat cystic fibrosis, the thumbs up. The regulator’s preliminary findings on February 1 were not encouraging and Pharmaxis shares plunged 46 per cent – they’ve since lost further ground.

That dive could make it a takeover target for a big pharmaceutical player with the resources to make regulatory approval of the treatment a reality, but if that does happen the riches will be collected by the suitor – the takeover price won’t come close to reflecting the product’s potential.

Cast your minds back to the merger of Biota Holdings with US-based Nabi Pharmaceuticals, which was little more than a cashbox, was effectively a backdoor listing for the frustrated Australian innovator.

Nabi had some coin, they’re based in the US – why not move over?

The Australian market is too small to generate sufficient interest for big scale biopharma innovation. So if Itescu can get himself some breathing room in the Australian market of all places, have at it sir.

Nine Entertainment, WIN Television, Southern Cross Media

Nine Entertainment executives are reportedly understood to have met with WIN Television executives about renewing their regional affiliation agreement as they also chase merger talks with Southern Cross Media.

The affiliation deal fell over in June and The Australian Financial Review understands that Nine has been talking to WIN about a possible return, though merger discussions with Southern Cross, Ten’s current partner, were apparently not raised.

Ten is of course struggling and has WIN TV’s Bruce Gordon on the board with 14 per cent of the register. Talks between Southern Cross for an affiliation renewal have been taking longer than expected.

Gordon is at the centre of a few diverging narratives as the sector gears up for an M&A feast.

And staying with media for just a moment, the National Rugby League radio broadcasting deal talks with John Singleton’s Macquarie Radio Network must be going right down to the wire.

We’ve still not heard any word if a deal has been done the Sydney Roosters and the South Sydney Rabbitohs are doing battle tonight.

Best of luck to Singleton, but in the meantime, go Rabbitohs!!

Qantas Airways, Atlas Air

Australian carrier Qantas Airways is believed to have entered discussions to purchase up to four second hand jumbo jets ahead of the expiry of its contract with American cargo carrier Atlas Air.

Qantas boss Alan Joyce is just weeks away from securing final approval from the Australian Competition and Consumer Commission for the airline’s 5-year alliance with Emirates, but his work is never done trying to turn the flying kangaroo into a stock that truly flies.

According to Fairfax, the price of one of the four jumbo jets is $US60 million. To put this into context, a modern Boeing 747-81 goes for about $US350 million. The reason for the disparity isn’t just age, but fuel efficiency.

Air cargo is the somewhat hidden part of the aviation industry. While global airlines fatten their margins by carrying packages along with their passenger’s bags, there are a handful of cargo specialists that leave them for dead.

FedEx flies around 7 million tonnes of cargo per year in total, followed by UPS Airlines with 4.5 million. To put things into context, Qantas’s alliance partner Emirates, a global aviation giant, carriers 1.5 million tonnes, the second largest of the rest after FedEx and UPS.

Wrapping up

Amid the equity surge, The Australian Financial Review has tentative word that two major shareholders in Australian companies are exploring options of cashing out.

Apparently, Wilmar International has been trying to offload its 10.1 per cent stake in breadmaker Goodman Fielder, but private equity buyers got skittish, while Royal Dutch Shell has sent investment banking teams to its headquarters in The Hague to talk about its much anticipated exit from Woodside Petroleum.

Nothing’s likely to happen imminently on either front, but it’s a useful reminder that there are some big stakes in big Australian companies that big international players aren’t really committed to that are worth a lot more now than three months ago.

Staying with resources, Kerry Stokes Iron Ore Holdings is in talks with a number of potential investors over its Buckland project in Western Australia, according to The Australian.

And finally, here are a few names to note down for future M&A stories – Fiona Gardiner-Hill, Elizabeth Hallett and Denise McComish. They’re the newest additions to the Takeovers Panels for the three years to March 2016.

Vickki McFadden has taken over as the panel’s new president from the outgoing Justice Kathleen Farrell, who has been appointed to the Federal Court.

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