S&W Seed: Another big acquisition drives SANW to
number one worldwide.
S&W SEED CO (SANW): Get Free Report
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By Ian Gilson, CFA
On March 17, 2013
S&W Seed (Nasdaq-small:
announced that it has agreed to purchase Seed Genetics
International (SGI) of Unley, Adelaide, South Australia. The deal
is scheduled to close in early April 2013, in time for S&W
Seed to capture most of SGI's 2013 seed production. The combined
companies will be the largest non-dormant alfalfa seed producer
in the world.
The terms are for 865,000 shares of stock, $5 million in cash and
a $3 million promissory note. SGI had revenue of AUD$18 million
in the 2012 fiscal year ending June 30, 2012 with pretax income
of $1.6 million (8.8% pretax margin). Due to bad weather the
company sold 5.5 million pounds of alfalfa seed in fiscal 2012,
well below its average of 8 million pounds over the past few
SGI has access to over 32,100 acres of land of which nearly 70%
is under irrigation and the rest has a reasonable rainfall in
most years. 75% of the acres are used to grow alfalfa and the
rest is mainly under clover (which is also used as bovine and
equine food although care has to be taken with clover since
certain varieties under certain conditions can be toxic to cows
and horses). In fiscal 2013 the overall average price for all
seeds combined was AUD$3.27/#, well below the nearly $4.50/#
realized by S&W Seed. However, SGI's cost of production is
materially lower than S&W's California cost of production.
SGI has a market share of about 60% of Australian seed production
and also has access to seed produced in the US, South Africa and
Europe. The company has significant sales in South America, where
S&W Seed has a minimal presence. The acquisition is expected
to be immediately accretive to S&W's earnings.
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