United Phosphorus acquires 50% in Sipcam Isagro Brazil

United Phosphorus, an agrochemical company with a turnover of over Rs 5,000 crore in 2009-10, said it is acquiring a 50% stake in Sipcam Isagro Brazil, a Brazilian agrochemical company. Sipcam is an equal joint venture between the Sipcam-Oxon group and Isagro.

Isagro has decided to withdraw from the Brazilian and Italian markets as part of its restructuring process. It is selling its 50% stake in the joint venture to United Phosphorus as part of this restructuring. Sipcam Isagro makes and sells crop protection products in Brazil, with a turnover of 81million euros or Rs 500 crore in 2009, and employs about 190 people.

On 27 January, Isagro announced the disposal of its stake in Sipcam Isagro, to an unnamed multinational (which turned out to be United Phosphorus) and also the sale of its 50% stake in Isagro Italia, a 79million euro turnover company, to Sumitomo Chemical company. It will earn 35 million euros in cash from both stake sales, but has not disclosed the split.

Assuming both companies had an equal valuation, since their revenues are nearly identical, United Phosphorus may have had to pay about 17 million euros or about Rs 100 crore. This may change if both companies have different profit margins and growth prospects. United Phosphorus’ 50% stake will entitle it to half of revenues, or about Rs 250 crore and an equal share in profits and losses as well.

United Phosphorus views this as an attractive entry point into the $7 billion or Rs 31,500 crore Brazilian market for crop protection products. Though it has not revealed specific plans, in a statement, it said that it will target untapped and promising areas to address significant market opportunities.

The company has been a regular on the M&A circuit, snapping up companies or brands, to either get access to new markets, add product registrations or simply buy out older generation products from multinationals, and make them viable through a more cost effective setup.

The stock markets appear more preoccupied with the nearly 2% fall in the broad market and United Phosphorus’ share was down by nearly 4.5%, at the time of posting. The markets may also be concerned about the impact of its acquisitions, three in the year so far, on its interest costs, which have risen by 61% in the year 2010-11, till December.

Read the announcement from United Phosphorus here and the announcement from Isagro here.

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