February 27, 2019 / 2:42 AM / 4 months ago

Australia's Ruralco backs 44 percent premium in Canada's Nutrien bid; shares surge

SYDNEY (Reuters) - Australian rural services firm Ruralco Holdings Ltd on Wednesday backed a $337 million takeover bid by Canada’s Nutrien Ltd, the latest potential tie-up in a sector consolidating in the face of severe drought.

Fertilizer giant Nutrien, which owns Landmark, one of the largest agricultural businesses in Australia, offered A$4.40 a share in cash for rival Ruralco, representing a premium of about 44 percent to the company’s last close.

The deal is likely to face antitrust concerns as it would merge two large rural supply firms to create a sector heavyweight.

“Effectively it is about the No. 1 market player buying No. 3,” Philip Pepe, senior analyst at Blue Ocean Equities said. “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 to A$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 Chairman, Rick Lee said in a statement.

The deal would be immediately accretive for Nutrien, formed by the union of Agrium Inc and Potash Corp of Saskatchewan last year, said President and CEO 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.

BIDDING WAR?

Elders, which has in the past expressed interest in growing 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.”

Media representatives from Elders did not return requests for comment.

The offer comes at a time of heightened global interest in Australia’s agriculture sector, with Saputo Inc grabbing Murray Goulburn for $1.0 billion, while GrainCorp Ltd received a 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 cost, while a regulatory crackdown has hit its live export division.

Competition watchdog, the Australian Competition and Consumer Commission, said it was aware of the deal and would commence a public review of the proposed acquisition.

Ruralco also declared an interim dividend of up to 10 cents per share, and an additional special dividend of 90 cents a share on or before implementation of the deal that would reduce the bid’s cash payment to investors to A$3.50 per share.

Reporting by Paulina Duran in Sydney, additional reporting by Niyati Shetty in Bengaluru; editing by Richard Pullin

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