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UPL Corporation, the wholly owned subsidiary of UPL in Mauritius, announced Monday that it has purchased Arysta LifeScience Inc. and its subsidiaries for $ 4.2 billion. signed a definitive agreement with Platform Specialty Products Corporation to acquire Arysta LifeScience.
Arysta is a global provider of innovative crop protection solutions, including biosolutions and seed treatment.
Following this acquisition, UPL will strengthen its leading global position in agricultural solutions with $ 5 billion in combined business, $ 1 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) and 20 percent + pre-synergies of EBITDA margin.
from 10 to 12 rupees during fiscal year 20 and generate annual synergies of over $ 200 million. The company expects leverage to increase up to 3-3.5x after the transaction. The additional interest cost will be $ 120 million
Based on EBITDA earned of $ 424 million for the twelve months ended March 2018, the enterprise value or multiple of $ 424 million will be recognized. EV at EBITDA is 9.9x (ex-synergies). The transaction is backed by a $ 1.2 billion equity investment in UPL Corp from long-term investors, including a wholly-owned subsidiary of the Abu Dhabi Investment Authority (ADIA). and TPG, a world leader in alternative assets. ADIA and TPG will each invest $ 600 million for a combined 22% interest in UPL Corp.
UPL Corp. received $ 3 billion of debt financing commitments for the remaining five-year counterparty of MUFG Bank, Ltd. and Rabobank UA Co-operative (Hong Kong Branch)
Brokerage firms have remained positive on the stock following this acquisition, but few brokerages have reduced their target prices because of limited benefits in terms of synergy
CLSA: Buy | Target: Rs 940 | Yield: 71%
The acquisition of Arysta is accretive to EPS and we believe that the acquisition will remain EPS accretive despite no synergy benefit in the fiscal year 20.
Investec: Buy | Target: Rs 785 | Yield: 43%
The Arysta agreement is likely to be profitable
The risks associated with Arysta's agreement are largely integrated and the Realization of Synergies Can Result in Significant Benefits
Operations in India
Kotak Institutional Equities: Add | Target: Rs 640 | Return: 16%
The acquisition of Arysta will consolidate the position of UPL in the world's top five players in agrochemistry.
Kotak retained his Add-on note on the stock after reasonable valuation after recent correction, but reduced target to Rs 640 of Rs 850. "The limited clarity on synergies and the negligible increase in earnings are keeping us cautious. "
Emkay: Buy | Target: Rs 773 | Back: 40%
Emkay also maintained the Buy evaluation on the stock with the reduced target price at Rs 773 from Rs 923.
The research firm predicts Arysta EPE's relutive deal FY20 and increased FY20 EPS 8% estimate at Rs. 55.30
High leverage is a concern
Credit Suisse: Buy | Target: Rs 850 | Yield: 54%
The Arysta agreement may create significant value over the next few years but the performance is critical, given the size of the operation and the high burden of debt. We took into account the risk of execution by adding a high risk score
Motilal Oswal: Buy | Target: Rs 664 | Yield: 21%
The acquisition of Arysta would generate significant synergistic benefits (expansion of the product portfolio, enhanced presence in Europe and cost synergies on integration and l & 39; retrospective effectiveness), but would also result in a highly indebted balance sheet. UPL
We note that the FPT securities are trading at 8.9 times the EB / EBITDA of the 1818 fiscal year and that the acquisition took place at 9.9 times the EB / EBITDA of Arysta (with a premium of 11% on the current valuation of UPLL). However, UPL acquired Arysta at CY17 EV / 2.2x business turnover, a reduction of 5% from the valuation at which Platform Chemical acquired Arysta ($ 3.5 billion in October 2014 at EV / 2.33 CY13). the acquisition, not only the EPS 20 would decrease by about 8 percent (compared with previous estimates), but also the EO 20 should go from 23.1 to 21.2 for hundred.
In addition, net D / E would rise from 0.1 to 1.5 and 20 net debt to EBITDA would increase from 0.4 to 2.6. While we revise revenue and EBITDA estimates for the fiscal year and 62% and 59% (construction of Arysta's financials), we have reduced PAT estimate of 20 % (due to higher interest costs on the increase in debt). , reduced the valuation multiple from 17x to 13x FY20E EPS and arrive at a target price of Rs 664.
At 12:10 pm, the stock price was Rs 626.55, up Rs 76.30 , or 13.87 percent on BSE.
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