Is Koor Trying to Sell Half Its Interest in Makhteshim Agan?

Not likely, says Leader Capital Markets: Report a figment of convenience.

Nathan Lipson
Nathan Sheva
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Nathan Lipson
Nathan Sheva

Koor Industries is reportedly negotiating to sell half its shares, or almost 40% of the voting rights, in agrochemicals maker Makhteshim Agan Industries. Some analysts, however, dismissed the report yesterday, suggesting that it derived from Koor's convenience, not actual intentions.

Nochi Dankner's IDB group of holding companies, which controls Koor (59.5% through two companies) stated that Koor had been contacted by "international sources that want to buy its holdings" in Makhteshim Agan.

IDB turned down the prospective buyers, say the group companies. However, the announcements stated, group company Koor is negotiating to possibly add to the controlling group, possibly selling as much as half the controlling interest. Naturally, the firms added that quite possibly, nothing will come of the moves.

Makhteshim Agan's market cap in Tel Aviv is $4.3 billion, making Koor's stake worth $1.7 million. Other than Koor, Makhteshim Agan shares are held by a subsidiary of Makhteshim Agan (1%) and Discount Investments (0.2%). Institutional investors belonging to the IDB group also hold tiny interests.

Makhteshim stock suffered badly from its profit warning for the last quarter of 2007. Yet on the whole, its quarterly results were satisfactory, relative to the warning: it netted $20.2 million on revenues that climbed 17% year over year to $2.1 billion. For the year it netted $178.2 million, against $83.9 million in 2006.

Since April 1, some three weeks after the report for 2007 was published, Makhteshim Agan stock has leaped by 27.4%, possibly fueled by assessments that the IDB group might sell control of the firm. Also, investors expect flourishing demand for pesticides as commodity prices, including of grains, continue to stay high.

The market estimates that Makhteshim's first quarter will also be good, in keeping with the results of other companies in the field. The director of company activities in Brazil recently hosted the heads of Deutsche Bank and informed them that the market conditions under which the company operates in Brazil - one of Makhteshim's major target markets - are excellent, as he put it.

Leader thinks not

Leader Capital Markets, however, doubts that Koor is about to shed half its Makhteshim-Agan stake. "We wouldn't necessarily associate an overly high probability that any such deal will materialize," wrote the brokerage following the report.

Which is analystese for "Huh," or as analyst Yoav Burgan goes on to say: "It isn't clear how serious the talks Koor is holding are. Moreover, going by the language of Koor's announcement - it seems it was pretty much forced to say exactly that in the prospectus for a rights issue it filed with the Israel Securities Authority."

Who might be the prospective buyer? Burgan's betting on private equity funds, not on rival industrial bodies. However, under today's market conditions, Burgan thinks the funds would have difficulty borrowing the means to buy a substantial stake in Makhteshim Agan, especially at a premium over its market valuation.

Makhteshim Agan's first-quarter sales are traditionally strong because European and North American farmers need its agrochemicals for their spring and summer crops. This year's first-quarter growth was stronger than last year's, says Burgan. He doesn't believe that Makhteshim Agan's present market price reflects its full potential: his recommendation for the stock is Buy and his target is NIS 40. The stock jumped 4.4% on the TASE yesterday.

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