The Makhteshim Agan Group (TASE: MAIN), the world leader in branded off-patent crop protection solutions, announced today that on January 8, 2011, after previously having received the approval of the Company's Audit Committee and Board of Directors, the agreement was signed with a subsidiary of the China National Chemical Corporation ("hereinafter ChemChina") to carry out a merger, whereby the holdings of the public in the Company and 7% of the holdings in the Company held by Koor Industries Ltd. (hereinafter "Koor") (the Company's controlling shareholder), would be purchased, and the Company would become a private company under joint ownership of ChemChina (60%) and Koor (40%).
The ChemChina Group is a major Chinese group controlled by the Chinese government, working in the fields of chemicals and agrochemicals.
The Company's shares shall be purchased at a price that reflects a value of the Company of USD 2.4 billion (calculated according to the effective holdings which do not include treasury shares held by the Company and by its subsidiary), and payment for them will be in US dollars. Accordingly, the price per share is USD 5.57 prior to dilution in a negligible amount likely to be caused by the exercise of employee options (which is at the report date and given the current dollar exchange, a price per share of NIS 19.93). As part of the agreement, the public shareholders of the Company will receive aggregate consideration of approximately USD 1.272 million for the sale of approximately 53% of the Company's shares, and Koor will receive consideration of approximately USD 168 million for the sale of approximately 7% of the Company's shares. It is stipulated that in the event that the Company shall make an offering of shares or tradable securities from the date of signature of the agreement until its closing date, there shall be added to the overall consideration an amount equal to 60% of the receipts from the said offering.
As part of the merger, ChemChina shall arrange for the provision of a non-recourse loan to Koor through a Chinese bank (hereinafter "the Bank") in the sum of USD 960 million, which shall only be secured by a lien on Koor's shares in the Company. The loan capital shall be repaid in full after 7 years and shall bear variable interest plus the costs that Koor shall be responsible for, resulting in an estimated annual effective rate, based upon today's LIBOR rate, of about 6%. During the first 4 years the interest shall not be paid but will be added to the loan capital, and thereafter the interest shall be paid quarterly. The loan shall be repaid in cash or with the mortgaged shares (or part thereof), and Koor shall be entitled from the end of the year in which the loan was provided, to make early repayment, in whole or in part, of the loan. Dividends in respect of the mortgaged shares up to the level of the annual interest charge shall be used for interest payments, with any surplus dividends, if there are any, being distributed to Koor. Koor, ChemChina and the Bank shall negotiate a detailed loan agreement (hereinafter "the Loan Agreement"), which shall be brought separately for the approval of Koor's Board of Directors.
It is stipulated that the Company has received an expert opinion from the offices of Isaac Swary, which determined that the share price in the transaction reflects fair value for the Company's public shareholders. In the said expert opinion, the economic value of the benefit to Koor of the features of the said loan has been assessed at an amount of between USD 183 – 210 million.
In addition, at the date of signing the merger agreement, and as informed by Koor to the Company, a shareholders agreement has been signed between Koor and ChemChina, which will become effective at the closure date of the transaction, regulating the partnership relationships between them in the Company and which sets out, inter alia, provisions in respect of: the appointment of directors in accordance with respective holdings; ChemChina's right to appoint the Chairman of the Board and the right of Koor to appoint the Deputy Chairman; specific veto rights for Koor; the appointment and dismissal of the Company's top management; the possibility of the sale of certain agrochemical assets of ChemChina to the Company (subject to Koor's approval); dividend policy; an undertaking to work towards a public offering of the Company's shares and registration rights to Koor in the event that the said offering does not take place within 3 years; various limitations regarding transfer of the Company's shares, including the mutual right of first refusal or the mutual right of preemption (at times to be determined), and Koor's Tag Along right in respect of a sale by ChemChina; Koor's undertaking that within the three years from closure of the merger Discount Investment Corporation Ltd shall not cease to be its controlling shareholder (except in the event that control shall be in the hands of another body within the IDB Group), and that thereafter it shall not sell control to a competitor of the Company or of ChemChina. In the event of a change in control of Koor after the end of the said 3 years, certain rights provided to Koor shall lapse (including Koor's right to appoint the Deputy Chairman and its rights concerning the appointment and dismissal of top management); ChemChina's undertaking to hold at least 51% of the voting rights in the Company until a public offering and to remain the Company's largest shareholder for a period that will be determined thereafter.
Closure of the merger agreement is subject to the fulfillment of various terms, including inter alia the receipt of the required approvals of the Chinese government authorities, which it is expected will take several months (and if not received within a period that will be set, it will be possible for Koor or the Company to cancel the merger agreement); approval by the Company's general meeting by a special majority in accordance with section 320(c) of the Companies Law, and also, as agreed between the parties, in accordance with section 275 of the Companies Law (Koor has undertaken to vote in favor of the merger at the Company's general meeting, subject to signature of the Loan Agreement and additional conditions); and also signature of the Loan Agreement and its provision to Koor (in the event that the Koor Board decides not to approve the Loan Agreement, Koor shall be entitled to cancel the merger agreement).
In the Company's assessment, subject to fulfillment of the suspensive conditions, closing of the transaction is expected to take place on the second or third quarter of 2011. If closing of the transaction does not take place by the end of August 2011 (subject to extension in certain circumstances), the parties shall be entitled to cancel the agreement.
There is no assurance that the merger transaction will be completed.
This report is made pursuant to the Company's previous reports dated October 11, 2010, November 21, 2010 and December 28, 2010 (reference nos. -01-6421952010, 686415-01-2010 and 733275-01-1010 respectively).
It is stipulated that Messrs. Nochi Dankner, Yitzhak Manor, Zvi Livnat, Avi Fisher, Ami Erel, Raanan Cohen and Haim Gavrieli who are serving as directors of the Company, have a personal interest in the approval of this transaction in their capacity as office holders in Koor and controlling shareholders thereof. The Company shall publish an Immediate Report on the convening of a general meeting to obtain the approval of the Company's general meeting, as stated above, as required in law.