07:13 AM | September 8, 2014 | Deepti Ramesh and Vincent Valk
FMC says that it has signed a definitive agreement to acquire crop protection company Cheminova (Harboøre, Denmark), for about 10.5 billion Danish kroner ($1.82 billion). Cheminova is a wholly owned subsidiary of Auriga Industries, which is listed on the Copenhagen Stock Exchange. FMC will fund the all-cash acquisition through a mixture of debt and existing cash reserves. The transaction is expected to close in early 2015 and will be accretive to adjusted earnings in the first full year following the acquisition, FMC says. Auriga had announced in June 2014 that it is reviewing its strategic options, but further details were not disclosed at the time.
FMC also says it will alter its previously announced separation plans by selling the company’s alkali chemicals, or soda ash, business, and retaining its lithium business as a separate segment. FMC said earlier this year that it plans to separate into two independent public companies by spinning off its lithium and soda ash businesses.
The acquisition of Cheminova prompted FMC's decision to change tactics on the separation, FMC chairman and CEO Pierre Brondeau tells CW. "If Cheminova were not available, we would still be on the separation track," he says. Acquiring Cheminova furthered Brondeau's goals for FMC - to create a large specialty chemicals company focused on agriculture and nutrition - to a greater extent than the separation did, he adds.
Still, there were other factors behind the decision to cancel the spin-off. Selling the lithium business, even along with soda ash, would result in a "change of control" for the rights to FMC's reserves in Argentina, meaning the rights would be lost, Brondeau says. The spin-off was engineered in such a way that the rights would not be jeopardized - technically, the minerals segment of FMC was spinning off the other two segments, so the controlling entity would not have changed - but such a set-up is impossible in a sale. Going ahead with the spin-off, in light of the Cheminova acquisition, would have created undue "complication and complexity," Brondeau says.
FMC also aims to use the cash raised by selling the soda ash business to pay down debt related to the Cheminova acquisition. "If you sell, you get all of the proceeds back, which is important for us," Brondeau says. The company told investors during a call last week that it does not foresee much difficult selling the soda ash business, which reported revenues of $747 million last year and is a solid cash generator. "We constantly get calls [on soda ash], but can't comment on how valid or real they are," FMC CFO Paul Graves said during the call. "We're not concerned about finding a buyer, given the cash flow profile, asset base and margins of the business."
Cheminova, which was founded in 1938, develops, produces, and markets crop protection products, and 98% of sales are generated outside Denmark. In 2013, Cheminova posted sales of 6.6 billion Danish kroner. It employs over 2,200 people in 24 countries. FMC intends to continue to operate, after close, all of the manufacturing facilities currently operated by Cheminova. These include the active ingredient manufacturing facilities in Denmark and India and the formulation facilities in Australia, Denmark, Germany, India, Italy, and the UK.
FMC will continue to operate both of Cheminova's active-ingredient plants - a shift for the company, which had previously relied on toll manufacturing to supply its actives. "We've been thinking that one or two plants to make our own actives...gives us more flexibility in complex formulations, and more control over manufacturing for highly confidential products," Brondeau says. The company, however, has no plans to expand its active-ingredient manufacturing base beyond the plants in India and Denmark. "The two plants are more than we need and we would not go beyond that," Brondeau says.
Cheminova also has a large sales force in Europe, expanding FMC's presence in a market where its penetration is limited. The acquisition also strengthens FMC's already-significant position in Brazil, and gives FMC new products to market with its existing sales force in North America, Brondeau says. In Asia, Cheminova expands FMC's access to markets in India and Australia, he adds.
Cheminova brings complementary technologies in insecticides and herbicides, significantly enhances FMC's fungicide portfolio, and adds a growing micronutrient business, FMC says. “Cheminova has a portfolio of more than 60 active ingredients; over 2,300 registrations; and a pipeline of active ingredients currently under development. It is the addition of this broad suite of technology that is particularly exciting to us, and we firmly expect to increase our pace of new product launches in the coming seasons as a direct result of adding Cheminova's capabilities to ours,” Brondeau says.
FMC anticipates synergies through a combination of production and operating efficiency gains, as well as improved market access. FMC expects the transaction to be accretive to adjusted earnings in the first full year following completion of the acquisition. Goldman Sachs acted as financial advisor; and Wachtell, Lipton, Rosen & Katz acted as legal counsel to FMC in connection with the acquisition. Citigroup provided additional financial advice and committed debt facilities, FMC says.