Shares of Discount and IDB Plunge Amid Disappointment Over Adama IPO Valuation

New York offering values agro-chemicals maker at about $2.75 billion, far less than the market expected.

An ear of corn.
An ear of corn. Credit: Bloomberg

Shares of Discount Investment Corporation and its parent company, IDB Development Corporation, plummeted yesterday amid disappointment over the terms of its initial public offering in Discount’s Adama agro-chemicals unit.

Adama, the world biggest maker of generic crop-protection chemicals, said earlier it had begun a road show to sell 23.5 million shares in its New York IPO at a price at estimated would be between $16 to $18 apiece.

That works out to a company valuation of just $2.75 million if the final price in the middle of the range, well below market expectations of between $3.5 billion and $4 billion.

That news sent the shares of Discount, which holds a 40% stake in Adama, tumbling down 41.1% to a close of 13.40 shekels ($3.54) in late trading on the Tel Aviv Stock Exchange. IDB Development, the flagship company of the holding group controlled by Eduardo Elsztain and Moti Ben-Moshe, saw its shares plummet 21.5% to a close of 3.38 shekels.

Adama said that the nearly $500 million in capital it is raising will be used to finance its acquisition of several companies in China from China National Chemical Corporation, popularly known as ChemChina, which acquired the other 60% of Adama from IDB two years ago when the company was known as Makhteshim Agan. Adama said it would use any remaining proceeds for general corporate purposes.

However, IDB group is carrying a seven-year, $960 million loan it took from ChemChina at the time. Already carrying a heavy debt load, accumulated when the holding group was controlled by Nochi Dankner, Discount and its controlling shareholders were counting on the sale of Adama shares in the future to cover repayments.

Based on Adama’s IPO valuation, Discount’s stake in the company just over $1 billion, although under the terms of the loan agreement it can turn over the shares to ChemChina instead of repaying the debt.

The low valuation comes just a day after Adama in the third quarter from a year earlier from higher sales and an improved product mix. Revenue grew 4% to $761.5 million mainly due to an increase in volumes sold. Earnings before interest, taxes, deprivation and amortization, or Ebitda, rose 1% to $114.6 million.

Moroever, Adama announced five weeks ago that it would buy 100% of Jiangsu Anpon, Jiangsu Maidao, Jiangsu Huaihe and Jingzhou Sanonda Holdings from ChemChina for $324 million in cash and assume debt of another $300 million. Those companies, which will give the company a major foothold in the Chinese market, had combined sales in the first nine months to $667 million.

However, Adama’s prospects seem to be weighed down by declining commodities prices, especially for corn and soya. The willingness of growers to plant more crops and buy more pesticides is closely linked to farm prices.

In fact, shares of publicly traded agrochemcials comanies, such as Monsanto of the United States and Switzerland’s Sygenta, have fallen in response to the global delcine of commidity prices.

Under the terms of the offering, Adama said it is granting the underwriters led by Goldman, Sachs and Bank of America Merrill Lynch an option to purchase up to an additional 3.525 million shares. Thus Adama will have a total of 161.49 million shares issues if the underwriters don’t exercise the option, or 165.02 million if they do.The shares will trade on the New York Stock Exchange.

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