| HONG KONG/JERUSALEM
HONG KONG/JERUSALEM ChemChina is selling Israeli crop protection company Adama Agricultural Solutions to a firm it controls for $2.8 billion, paving the way for completing a previously announced combination of the two businesses and listing it on the stock market.
China National Chemical Corp (ChemChina) [CNNCC.UL], as the state-owned firm is officially called, is selling Adama to Hubei Sanonda Co Ltd (000553.SZ) for about 18.6 billion yuan ($2.8 billion), Sanonda said.
Israel's Discount Investment Corp (DISI.TA) agreed to sell a 40 percent stake in Adama to ChemChina in July for $1.4 billion including debt, paving the way for the two businesses to combine. ChemChina already owned 60 percent of Adama before the July deal.
The deal, expected to be fully complete in the first half of 2017 and still subject to various approvals, values Adama at $5 billion including $1 billion in debt.
It comes as China, the world's largest agricultural consumer, is looking to secure food supply for its population.
The reverse merger allows Adama, which is 10 times Sandona's size, to be listed on the Shenzhen Stock Exchange and gain a foothold in China, where foreign firm can have a difficult time.
Global companies have less than a 25 percent share of China's $5 billion agrochemical market, with Adama's share about 4 percent, Adama Chief Executive Chen Lichtenstein said.
"This is our opportunity in the Chinese market," he told Reuters. "Over time, we should grow organically to more in the line of a double-digit market share five, six years out."
That compares with 7 percent in Europe, 5 percent in Latin America and 4 percent in North America.
"We feel we can grow in China faster than growth in the rest of the world," Lichtenstein said, noting all regions were growing.
Although Adama is a generics firm its success largely stems from taking more than one off-patent ingredient and mixing two, three or four together and selling the mixture to farmers.
Agrochemicals companies have been consolidating, partly due to falling commodities prices hitting farm incomes.
ChemChina itself is finalizing a $43 billion takeover of Syngenta AG (SYNN.S), extending by almost two months a deadline for investors in the Swiss pesticides and seeds group to tender their shares.
Sanonda, based in China's central Hubei province, is issuing 1.82 billion new shares to ChemChina at a price of 10.20 yuan each to pay for Adama.
Sanonda also said it plans to raise up to 2.5 billion yuan in a private placement of 245.1 million shares at the same price to help fund Adama's production and expansion projects.
ChemChina was already the biggest shareholder of Sanonda with a 31 percent stake through subsidiary China National Agrochemical Corporation (CNAC) and will own 75 percent after the two share sales, Sanonda said.
Guotai Junan Securities acted as financial adviser to Sanonda.
"The listed company aims to boost synergy and enhance overall profitability through a merger with Adama," Sanonda said in the filing.
Shares of Sanonda, which trades on the Shenzhen stock exchange, have been halted since August 2015, when Adama and Sanonda first unveiled plans for a potential combination.
Lichtenstein said Adama was building formulation and packaging and research and development facilities in China with the aim of selling within China and the rest of the world.
(Additional reporting by Lee Chyen Yee, Meg Shen and Tris Pan; writing by Elzio Barreto; editing by David Clarke)