Rathbone's bumper harvest

Only a few months ago Doug Rathbone was on the verge of cashing out his $500 million shareholding in Nufarm, the company he built, before the sub-prime crisis scuttled the deal. Today he's probably quite happy that deal fell over.

Rathbone was said to have had mixed feelings about the $3 billion, $17.55 a share buy-out of Nufarm by a consortium of China National Chemical Corporation and private equity players Blackstone and Fox Paine, but felt the price was too good to refuse. His extensive wine industry interests would have given him something else to focus on.

As it happens, the withdrawal of the buyout offer hasn't hurt Nufarm or Rathbone. While all around it is a sea of red ink, Nufarm's share price has held up remarkably well. At the $16 a share level at which it was trading before today's trading halt, it was valued at about $2 a share more than it was before the approach.

The market has come to appreciate Nufarm's strategic positioning in the context of the boom in agricultural or soft commodities – as one of the world's leading agricultural chemicals producers it has a leveraged exposure to what appears to be a structural shift occurring in global markets for agricultural products as China, India and Latin America industrialise and their middle classes shift up the protein curve.

Nufarm's resilience in the face of the sharemarket meltdown has enabled Rathbone to pursue growth through acquisition while most around him are battening down the hatches.

It will also allow him to cash out a proportion of the wealth he has locked up in Nufarm to fund the continuing expansion of his private wine interests, which include Yering Station in Victoria, Parker Coonawarra in South Australia and Xanadu in Western Australia. He is currently building a new warehouse and bottling plant in Port Melbourne.

The simultaneous acquisitions, for $236 million including assumed debt, of businesses in the UK and US – one to strengthen Nufarm's leadership position in phenoxy herbicides and the other to expand its interest in turf and specialty products – signals that the relentless expansion that has characterised Nufarm under Rathbone will continue. Both are relatively low-cost and low-risk transactions that will add materially to Nufarm earnings – a combined $24.7 million contribution to after-tax earnings in 2008-09.

The deals will be funded by a $200 million institutional placement and share purchase plan that will leave Nufarm with up to $50 million in extra working capital. As part of the institutional bookbuild, Rathbone will sell four million of his shares, raising about $60 million, while retaining more than $400 million of Nufarm shares, or about 14 per cent of capital. While a small proportion of his shares have been funded by a margin loan (Nufarm says less than 3 per cent of his holdings) his average entry price is less than $3 a share.

Rathbone's decision to sell some of his shares rather than borrow against them to access his paper wealth to finance his private interests is likely to become more commonplace as chief executives review what has happened to senior executives and their companies when they have been hit by margin calls in a falling market.