Ruralco has been grappling with a drop in crop protection product sales as a severe drought grips Australia’s east coast
SYDNEY, Australia (Reuters) — Nutrien’s bid for a rural services company in Australia is being supported by the Australian firm.
The A$337 million takeover bid of Ruralco Holdings Ltd. is the latest potential deal in an Australian sector consolidating in the face of severe drought.
Nutrien, which owns Landmark, one of the largest agricultural businesses in Australia, offered $4.40 a share in cash for rival Ruralco, representing a premium of about 44 percent.
The deal is likely to face antitrust concerns in Australia because it would merge two large rural supply firms to create a sector heavyweight.
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“Effectively it is about the No. 1 market player buying No. 3,” said Philip Pepe, senior analyst at Blue Ocean Equities.
“It is a fair price for the Ruralco shareholders and it should attract some synergies if the regulator allows it to go through.”
Ruralco said in a statement its board unanimously recommended Nutrien’s offer in the absence of a superior proposal, sending its shares soaring 47 percent Feb. 27 to $4.50, its highest price in over a decade, before closing at A$4.44, still above the offered price.
“There is strong logic in bringing together the trusted businesses of Ruralco and Nutrien’s Australian subsidiary Landmark to capture synergies, efficiencies and cost savings in our highly competitive rural markets,” Ruralco chair Rick Lee said in a statement.
The deal would be immediately accretive for Nutrien, said president Chuck Magro.
It would represent a strategic threat to rival Elders, which according to researcher IBISWorld is Australia’s second largest livestock and agricultural supplies company.
Elders, which has in the past expressed interest in expanding its business through acquisitions, could potentially launch a rival bid for Ruralco, but a move is far from certain, analysts said.
“Elders have had discussions in the past to buy or merge with Ruralco and agreed to walk away,” Pepe said.
“I can’t see Elders paying a greater premium today, so I’m surprised the share-price has gone above the bid price.”
The offer comes at a time of heightened global interest in Australia’s agriculture sector with Saputo Inc. grabbing Murray Goulburn for $1 billion, while GrainCorp Ltd. received a $2.38 billion bid from a privately held asset manager.
Ruralco has been grappling with a drop in crop protection product sales as a severe drought grips Australia’s east coast, while a regulatory crackdown has hit its live export division.
The Australian Competition and Consumer Commission said it was aware of the deal and would commence a public review of the proposed acquisition.