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.
6 comments:
The loan is "insurance" that the Chinese will not plunder or reduce the value of the Makhteshim shares under their management. It's like a "put" option. If the value goes up, Koor keeps the shares (or sells them at the end to repay the loan and pocket the profit). If the value goes down, they walk away from the loan and forfeit the shares -they have "sold" Makhteshim to the Chinese for $980M.
K
It sounds like they're selling the farm.
ram
Thanks K. This loan arrangement seems clever. Now I understand Nochi Dankner (the current - past - owner of Makhteshim's insurances that the Chinese counterpart is such a "nice and honest group of Chinese patriots". The Chinese are obligated to maintain the factory in Israel for the next seven years. I dont see why they should do it, when their own factories's production costs are lower. What they basically bought is a marketing network. May be they will retain Makhteshim as a marketing tool and a research lab for new products.
Anyway, Nochi Dankner is going to receive a large sum. He said he is looking for investments out of Israel. He already owns 3-4% of Credit Suisse bank.
I hope the ladies in the picture are not too distressed by this sale.
Really a very clever structure now that I think about it. A normal "put" option to protect the downside risk, where the buyer has a legal obligation to buy the shares but does not have to give you the full purchase price up front, would be worthless in the Chinese context where there is no effective legal system to enforce such promises. So getting all the money in advance (while giving the Chinese (or more likely a law firm or other neutral party) the shares to hold as collateral) was a brilliant solution.
K
Looking at the particular picture, I might volunteer to work in the fields there for nothing.
Anon.
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