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Chemical giants set sights on SA group
Multinationals are lining up to contest Dow's bid for Sentrachem, writes SVEN LUNSCHE
Business Times understands that Sentrachem was approached by a number of multinational corporations on Friday. A counter-bid to the R10.50 a share offer by US group Dow Chemicals was not yet on the table, but sources indicated that higher offers could be forthcoming soon. Likely candidates and names bandied about in the market include US group Monsanto, UK's Zeneca, Japan's Sumitomo and Swiss group Rhone-Poulenc. The board and management of Sentrachem, with the notable exception of 39% shareholder Sankorp, rejected Dow's offer on the basis it did not provide a fair value of the group. The board's rejection means the R2-billion Dow bid is now a hostile one. Any new bidders are likely to drive the price up from Dow's R10.50 offer. Monsanto, a St Louis-based group with a market capitalisation of $14-billion, has most to lose from a successful bid for Sentrachem by Dow. Monsanto produces glyphosate, the world's top-selling herbicide, used in the production of its most successful product, Roundup. Roundup contributes about half of its $1-billion operating income. Monsanto has an 85% to 90% share of the world market for glyphosate but its patent on Roundup expires at the end of the decade, opening the market to other contenders. Analysts say that Dow's game plan is to provide the financial muscle to build up the two Sentrachem subsidiaries with the ability to boost production of glyphosate - US-based Hampshire and Sanachem. "By buying Sentrachem, Monsanto forestalls a future price war and at the same time gains a foothold in the small, but lucrative, African market," says one analyst. In November last year Sentrachem announced a $75-million expansion plan at Hampshire to boost production of glyphosate with a view to manufacturing Roundup by 1999. Similar motives are attributed to the other bidders - access to agri-chemical production facilities, particularly at Hampshire, and to the SA market. Hampshire appears to be the trump card for the Sentrachem managers and directors who rejected the bid. They feel strongly that a R10.50 offer severely undervalues Hampshire's contribution. "If Hampshire were to be listed in New York it would trade at a price-earnings ratio of about 15. Dow's offer values it at nine," says one analyst who believes that an offer of R11.50 to R12 would get a more favourable reception. Sentrachem's second largest shareholder, Old Mutual (with 20%), has indicated it will not accept the Dow offer but is involved in negotiations with Dow. "We would look at other offers for Sentrachem with interest," says assistant GM, investments, Roddy Sparks. A spokesman for Dow in Europe said the group believed its offer was fair value, and would not comment when asked if Dow would raise its bid should there be competing offers. But analysts say a higher offer by Dow in a competitive bidding situation "is almost a foregone conclusion".
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