Wednesday, December 29, 2010
The End of an Era
Makhteshim is one of Israel's first industries, established to serve the development of Israel's agriculture. In the era before the State, agriculture was seen as the necessary foundation of a healthy nation. Makhteshim grew to become the largest producer of ag pesticides and herbicides in the world. Then it was sold to a private businessman, Nochi Dankner, who is now selling it to ChemChina, a Chinese state-owned conglomerate. The last remnants of Israel's heroic, idealistic past, when each orange and each egg was considered a trascendent historical achievement, is moving to China.
And I am going to benefit from the sale. The shares of Koor, owner of Makhteshim, lifted 9% yesterday.
ChemChina is buying the 53% of Makhteshim held by the public for $1.3 billion and is paying Koor $168 million for another 7%. All the shares will be sold based on the $2.4 billion valuation. Ergo, if and when the deal is consummated, ChemChina would end up with a 60% stake in Makhteshim, with Koor holding the rest. ChemChina is expected to extend a non-recourse loan of $960 million to Koor, secured only by Koor's Makhteshim stock payable in cash or shares. The floating rate loan is to be repaid in seven years at an effective annual rate of about 6% (based on the current relevant Libor rate). Interest charges for the first four years will accrue but not be paid. I dont understand what this loan has to do with the sale.