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(photo credit: Ariel Jerozolimski)
Makhteshim Agan Industries, the leading generic agrochemical company, could be gearing up for a large, "company transforming" deal as part of its strategy to gain market share in Eastern Europe and the Far East.
"That's why we did the bond issue last year so we are well-positioned in the market from a financial point of view once the right opportunity comes up," Makhteshim CEO Avraham Bigger told The Jerusalem Post in an interview at the company's brand new offices at the Airport City Industrial Park next to Ben-Gurion Airport.
The company is looking into opportunities as part of its acquisition strategy and was not excluding deals that would be company transforming, said Bigger, who took the helm at Makhteshim last October. The company subsequently company completed a $550 million domestic issue of 30-year bonds that was unprecedented in terms of size and duration.
"Generally speaking there is huge volatility in the markets discouraging private equity activity and a lack of financial means, but we can see opportunities for companies to be sold because of the good feeling in the industrial sector and we are willing to pay a premium that could be financed by synergies," said Bigger.
"The US market is a very competitive market and we want to increase our market share in Eastern Europe and in particular in the Far East, where our presence has not been strong enough."
He declined to comment on recent reports that said Makhteshim was in the running to acquire Japanese crop protection and life sciences firm, Arysta LifeScience Corporation, in a $2 billion deal.
It is believed that other prospective bidders in the race to buy Arysta from private equity firm Olympus Capital Holdings include India's United Phosphorus Ltd. and Australia's Nufarm Ltd.
Other reports last month claimed that Makhteshim Agan might acquire Nufarm, the world's second largest generic agrochemicals maker with a market capitalization of $2b. Makhteshim has a $3.5b. market cap.
"A Nufarm merger does make strategic sense from a geographical and product perspective," said Joseph Wolf, an analyst at Lehman Brothers. "Such a deal would be somewhat atypical for Makhteshim Agan, as in the past it has made small purchases and a combination with Nufarm would be a large company transformational deal."
With the sector consolidating, Andrew Benson, an analyst at Citigroup, said Makhteshim's competitive position could be hurt and it might end up overpaying for an acquisition. Nevertheless, in a note to investors, Benson said the company had a good track record on acquisitions and financial headroom of about $1b., excluding the potential for new equity for this objective.
Considered in the industry as a serial corporate restructurer, with a sound history of doing major deals, some believe Bigger may be just the man to make such a move.
"This is a leadership which feels comfortable in taking bigger steps at a time when the crop industry is consolidating," said one analyst.
Others, however, were more skeptical, with one Tel Aviv-based analyst saying it would be tough for the company to justify a large billion dollar deal to investors that might require full dilution.
"Makhteshim Agan is much more likely to be gearing up to buy additional product lines. Dow Chemicals and DuPont are expected to spin-off parts of their businesses, which could be of strong interest to Makhteshim Agan," the Tel Aviv analyst said.
Since Bigger took up the post from Shlomo Yanai, who left to take the top spot at Teva Pharmaceutical Industries Ltd., and had no previous corporate operational experience, Makhteshim Agan has been undergoing a fundamental internal restructuring designed to cut costs by an estimated $100m. by the end of 2008 with about $15m. coming from personnel costs, $60m. from procurement and the rest from production efficiencies.
The restructuring process, which is transforming from a holding company with about 40 autonomously managed operating entities into a cohesive integrated business, is making better progress than planned, according to Bigger.
"Here at our new offices we are bringing together all entities - management, finance, registration and development, business development, legal department, IT - into one company," he said. "The company is undergoing a cultural transition from a product-oriented company to a market-oriented company."