The Nufarm Limited (ASX: NUF) share price isn't going anywhere after the agricultural chemical company requested its shares be placed in a trading halt.
Why are its shares in a trading halt?
In an announcement, Nufarm requested a trading halt from the ASX because of its planned acquisition of a European portfolio of crop protection products and an associated capital raising. The Melbourne-based company has agreed to purchase the European product portfolio from Adama and Syngenta. Cash consideration will be US$490 million (A$627 million) plus an additional US$50 million (A$64 million) for inventory.
The portfolio contains over 50 crop protection formulations and is expected to contribute net sales of approximately $250 million and an EBITDA of between $95-$100 million in the 2019 financial year.
The deal is expected to be EPS accretive (pre-amortisation) in the range between the mid to high-single digits. Management has stated that the acquisition is aligned with the company's overall strategy and will strengthen Nufarm's European presence where the company generates its highest crop protection margins.
The acquisition will be funded through a combination of a fully underwritten entitlement offer of approximately $446 million and $272 million from existing debt facilities. The entitlement offer will allow eligible shareholders to subscribe for 2 new shares for every existing 9 shares at $7.50 a share, a 14.1% discount to the last closing price of $8.73.
Further acquisition
The company also announced that it was currently involved in exclusive discussions with another party to purchase a crop protection portfolio. Nufarm is completing its due diligence which is expected to be finalised in the coming weeks. If this acquisition were to proceed, it would be for less than US$100 million and be fully funded from the company's existing debt facilities. The additional portfolio would contribute approximately A$30 million in revenue for the first full year of operation (FY19).
Today's announcement comes off the back of last week's broker report from Morgan Stanley. The broker initiated coverage on Nufarm issuing an outperform rating with a $10.40 price target as it believes the market has overlooked Nufarm's transformation into a quality business.
