A tractor spreads fertilizer onto a field of wheat (Photographer: Chris Ratcliffe/Bloomberg)

All You Need To Know About UPL’s Latest Buyout Plan

The board of UPL Ltd. will be meeting in the next few days to finalise the takeover of agri-pesticides maker Arysta LifeScience, a person aware of the matter told BloombergQuint requesting anonymity.

Bloomberg first reported in June citing unnamed people that UPL will acquire Arysta LifeScience from U.S.-listed Platform Specialty Products Corp that is backed by investor and hedge fund manager William Ackman. Mumbai-based UPL has teamed up with other investors, including Abu Dhabi Investment Authority, it said. The Mint and Economic Times subsequently reported on the deal.

Why UPL’s Stock Fell?

Shares of the chemicals maker have fallen 15 percent in the last one month amid worries that the deal will increase UPL’s leverage. Bloomberg on July 16 reported that the company is looking for a $3-billion loan to fund the buyout, adding to investor concerns.

UPL declined to comment on BloombergQuint’s queries. Emails to Arysta LifeScience and Platform Specialty Products remained unanswered.

All You Need To Know About UPL’s Latest Buyout Plan

Brokerage UBS estimated that the deal could increase UPL’s leverage fourfold —net-debt-to Ebitda may rise from 1 to 4.2 times— if the deal goes through. The stock overhang will remain as the acquisition implies a premium —10.9 times the trailing 12-month enterprise value to Ebitda against UPL’s 8.7 times for the ongoing financial year.

Deutsche Bank said the proposed acquisition is unlike what UPL has done in the past. All its buyouts have been around $200 million and less than 6 times the EV-to-Ebitda. The proposed Arysta acquisition at the current price implies an EV-to-Ebitda of 11 times, it said.

The majority of the deal will be funded via debt as the promoters wouldn’t want to dilute shareholding below the current 27.7 percent, according to Morgan Stanley.

What Is Arysta LifeScience?

Arysta LifeScience offers agrochemicals to protect from weeds, insects and diseases. It was built through the $3.5-billion acquisition of Arysta in 2015, the $1-billion takeover of CAS in 2014 and the $370 million purchase of Agriphar, also in 2014, according to a report by Business World.

Ackman’s hedge fund Pershing Square Capital Management owns 14 percent in the Platform Specialty Products Corp, the parent of Arysta LifeScience. It reported revenues of $1.9 billion and adjusted earnings before interest, tax, depreciation and amortisation of $388 million for 2017, according to Bloomberg. For the trailing 12 months, sales stand at $1.9 billion and adjusted Ebitda at $445 million.

Will UPL Get Anything Out Of The Deal?

This is how UPL may gain from the acquisition, according to multiple brokerages including Morgan Stanley, Deutsche Bank, UBS and Investec:

  • Combined entity will become the fifth largest generic agrochemicals company in the world after Bayer, Dupont, Syngenta and BASF.
  • Arysta possesses expertise in speciality molecules where UPL is relatively weaker.
  • Integration may help as UPL is strong in manufacturing and Arysta on the marketing side.
  • Arysta has reach over Brazil, Africa, the U.S. and Asia, complementing UPL’s businesses.
  • Offers cost synergies using UPL’s strong manufacturing base in India and outsourcing by Arysta.
  • Greater exposure to Africa, China and a few other countries which UPL lacks.
  • Greater economies of scale in marketing and distribution as a merged entity.

Any Other Reason That May Impact The Stock?

The depreciating Brazilian real could impact UPL’s financials—Latin America is the biggest contributor to the company’s revenue.

The real depreciated more than 10 percent in the first quarter. Investec estimates that could lower UPL’s earnings per share by close to 3 percent for the ongoing financial year. Edelweiss, in its earnings preview, said that growth in Latin America could be flat.