July 18, 2016

Israel’s Discount Investment Corp. has agreed to sell a 40% stake in Adama Agricultural Solutions to ChemChina for $1.4 billion.

The deal will give full ownership of the largest producer of generic crop protection products in the world to ChemChina. Sanonda, a subsidiary of ChemChina, already owns the remaining 60%, which it acquired for $2.4 billion in 2011. Once the deal is completed, ChemChina will merge the operations of Adama and Sanonda by way of a reverse merger.

Under the terms of the deal, which values Adama’s equity at $3.5 billion, ChemChina will pay $230 million in cash and will assume a $1.7 billion loan, while Discount will report a capital gain of $178.5 million, according to Reuters.

The deal is announced only one month after the China Securities Regulatory Commission (CSRC) proposed an amendment to China’s regulations that would allow for deals where a foreign company may merge with a Chinese publicly-traded counterpart, reports ExitHub. This opened up the possibility that Adama could pursue a flotation through the combined company with access to both Renminbi and Hong Kong dollar-denominated markets.

The plan for Adama to merge with Sanonda became known last year amid a flurry of activity among the biggest agrochemical players looking to consolidate in the face of falling commodity prices and tighter margins.

“These recent developments enable Adama to move forward with the execution of its combination with Sanonda, which together with its rapidly progressing commercial and operational build-up in China, form a key step towards the realization of its China strategy,” said Nina Zoukelman, Corporate PR manager for Adama in a company statement.

Following the close of the Adama acquisition, the combined company will be headquartered in Israel and will be run by Adama’s global management team, with the company retaining the Adama name and branding.

“Adama, which has delivered market-leading performance over the past few years, is now well poised to cement its unique strengths and create a leading, China-global crop protection company,” said Zoukelman.

This sentiment of market domination was echoed by

ChemChina was first established through a restructuring of the subsidiary companies of China’s Ministry of Chemical Industry. Today, the state-owned entity posted revenue of $45 billion in 2015 and is the largest chemical company in the country.

Earlier this year, ChemChina also made a $43 billion cash bid for Syngenta AG, translating to a per-share bid of $465. Under the conditions of the deal, which is scheduled to close by the end of the year, a special dividend of five Swiss francs will be paid upon closing, and ChemChina will retain Syngenta’s management team, with ChemChina Chairman, Ren Jianxin leading a 10-person board including four Syngenta members.

Syngenta chairman, Michel Demare, upon the announcement of the Syngenta deal, said, “ChemChina has a very ambitious vision of the industry in the future. Obviously it is very interested in securing food supply for 1.5 billion people and as a result knows that only technology can get them there.”

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Lynda Kiernan