A GROWING interest in agricultural stocks worldwide has made agricultural chemicals group Nufarm a prime takeover target, say analysts.
Linwar Securities senior analyst Stephen Scott said big banks had been setting up commodity-based funds, spurred by high commodity prices.
"There is a sense there has been a lack of investment in agriculture in the long term," he said. "The resource sector had been underinvested in during the 1990s, so similarly there is a belief higher returns from agriculture could come in the future."
In this context, crop protection companies such as Nufarm become more valuable.
Mr Scott said higher commodity prices gave farmers more incentive to protect crops with science. "With higher prices, farmers can afford these solutions," he said. This included farmers in emerging markets such as Brazil and eastern Europe, but this trend also applied in Australia.
"If a farmer knows he has a good and valuable crop, he will protect it to ensure he can harvest it," Mr Scott said.
"For example, the farmer may spray the crop twice a year instead of once if he is going to get a good return."
Mr Scott said Nufarm's stake in Brazil, through its ownership of Agripec, heightened the company's value.
"Brazil is one of the few countries in the world where the amount of agricultural land is expanding," he said. In other areas of the world, agricultural land supply was declining because of fears about global warming, general environmental degradation and urbanisation.
Melbourne-based Nufarm's shares remain suspended while the company considers a takeover offer believed to be worth more than $3 billion from China National Chemical Corp. Nufarm's market capitalisation is $2.7 billion.
ChemChina, a state-owned enterprise set up in 2004 that also produces agricultural chemicals, has more than $US10 billion in sales and more than $US11 billion in assets. Its bid is being made in partnership with US private equity group Blackstone, which has more than $US90 billion in assets under management.
Nufarm managing director Doug Rathbone controls 17 per cent of the company.
The bid values Nufarm at almost $20 a share. The shares closed on Wednesday at $15.60, having surged 12.6 per cent, their biggest rise in nine years, to close $1.74 higher.
Nufarm is the eighth-biggest company in crop protection in the world. The leaders include groups such as Singenta and Monsanto. The total global crop protection market is valued at more than $US30 billion. Of this, about 31 per cent consists of patented products; 33 per cent is off-patent proprietary (off-patent solutions that are branded and marketed to farmers as a solution) and 36 per cent is generic, or copycat products.
Nufarm's main market is off-patent proprietary, although it is also active in the generic market.
Loosely, this means that Nufarm largely eyes about half the world's crop protection market, worth more than $US15 billion. With a reasonable share of the generic market, that gives it about 14 per cent of the non-patented world market.
Nufarm's major product market is herbicides.
Nufarm's sales in 2006-07 were $1.8 billion, and analysts tip sales of $2.1 billion this financial year. It manufactures in 14 countries.
ChemChina's potential rivals for Nufarm include Israeli-based crop protection group Makhteshim Agan.
Makhteshim ranks seventh overall in the global crop protection market, for proprietary and branded off-patent products. In the off-patent segment, the group ranks No. 1 in the world.
Makhteshim is a similar size to Nufarm, with sales this year of $US1.78 billion and a net profit of $US139 million.
