ChemChina has sights on Dow business
By Hepeng Jia/Beijing, China
After series of minor acquisitions, China National Chemical Corp (ChemChina), the country's largest agrochemical firm and leading fine chemical maker, has its eye on a subsidiary of Dow Chemical, the largest US chemical company.
In late June, ChemChina reportedly commissioned JP Morgan to act as a consultant in its bid for Dow AgroSciences, whose businesses range from herbicides and insecticides to seeds and farm management, at a price up to US$7 billion.
While spokespersons at ChemChina and Dow refused to confirm the news to Chemistry World, industry insiders and analysts say ChemChina has been well prepared to make the overseas expansion.
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ChemChina was founded in 2004 from companies belonging to the now defunct Ministry of Chemical Industry. Since its debut, the State-owned conglomerate has made more than 100 domestic acquisitions - though some as a result of government policies - and purchased France-based animal feed maker Adisseo and Australia's plastics and rubber firm Qenos to obtain technology, management and access to markets.
'[ChemChina] has expanded a lot in recent years, which could mean they are a bit stretched when it comes to US$7billion, but at the same time, if the deal is seen as strategic by the government, then I would not imagine they would have much trouble being financed,' says Sean Coyle, an analyst with China-based advisory firm Schmittzehe and Partners.
Dow is selling assets to repay the bank loans it obtained to acquire specialty chemical maker Rohm & Haas in April.
ChemChina had previously talked with Dow and refused the latter's proposal that ChemChina buy a minority stake into Dow AgroSciences.
'It is hard to imagine ChemChina taking a backseat in the acquisition of a company like this, mainly because their interest is going to be the control of something, be it the supply of fertiliser on the market, or technology or management expertise,' Coyle told Chemistry World.
But Dow may feel highly reluctant to sell Dow AgroSciences as a whole. With a total sales volume of US$4.5 billion and a pretax profit of US$761 million in 2008, Dow AgroSciences is one of the most profitable subsidiaries of the Dow empire.
Even if Dow seems unwilling to sell off the entire business, ChemChina could still profit from a deal with a narrower focus. 'I've heard that the key target for ChemChina in the Dow AgroSciences now is its pesticide sector,' says Xu Hongzhi, a senior analyst at Beijing Orient Agribusiness Consultant Company.
Chinais a large producer of pesticides, but not a strong one. And as a leading player in the country, ChemChina is eager to obtain advanced technologies and management in the business, Xu told Chemistry World.
In March, Dow Chemical chief executive Andrew Liveris told reporters the company would be seeking to maintain very key assets like Dow AgroSciences.