Agricultural crop protection company, Nufarm Ltd [ASX:NUF], is thought to be a potential takeover target from a US-based private equity fund.
Nufarm’s share price opened higher today at $4.57, before quickly settling to $4.43 at the time of writing.
This year has been particularly damaging for Nufarm’s share price, down more than 26%. Profit margins were slashed after droughts in Australia and floods in the US have affected crop and livestock production — which stifled demand for NUF’s crop protection and resulted in an oversupply of its products.
Catalyst for Nufarm’s takeover news
It might seem strange that a company facing a weakening share price, oversupply of product and legal action from a US court linking its Glyphosate herbicide to cancer, would be drawing the attention of a buyout fund.
But those very problems could be the reason.
The business is set to be worth between $1.50 and $2.00 a share, meaning if a takeover was to take place, the company that acquired it would be getting a major discount.
While there has been no formal bid, it is alleged that a US buyout fund might purchase the $1.6 million-valued company.
Nufarm downgraded its full-year EBITDA (earnings before interest, taxation, depreciation and amortisation) from $500–530 million to $440–470 million.
Nufarm’s future share price outlook
Unfortunately for Nufarm, natural disasters are out of its control and this has weighed heavily on its share price.
If you take a look at how the stock has been traveling over the last six months, you can see that its shares have dropped consistently.
However, there is more to be said for Nufarm’s potential.
Its seeds operations in canola, sorghum and sunflower seeds and oils has been showing a promising future. There have been talks of breaking off those operations into a separate entity to foster further growth for shareholder value.
More to come.
For Money Morning
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