LG Chem to acquire Dongbu Farm Hannong

LG Chem, South Korea’s top chemicals and battery maker, will take over Dongbu Farm Hannong, the largest pesticide and fertilizer producer in the nation. LG Chem said on Jan.8 that it will purchase a 100 percent stake in Dongbu Farm Hannong for 515.2 billion won ($429.3 million).

LG Chem’s takeover of the agrochemical business unit of the ailing Dongbu Group is expected to be complete sometime in March after due diligence and evaluation of the M&A decision are carried out. Then, why has chemical company LG Chem decided to buy a pesticide and fertilizer producer?

LG Chem says its acquisition of Dongbu Farm Hannong is part of its endeavors to secure a new growth engine. "Global chemical companies have been intensively developing their agro-chemical business into their future flagship business. LG Chem’s takeover of Dongbu Farm Hannong will help LG Chem evolve into an advanced global chemical processor," said Park Jin-soo, vice chairman of LG Chem.

As a matter of fact, most of the global agrochemical household names are major chemical companies, such as BASF, Dow Chem and Sumitomo.

BASF, the largest chemical producer in the world, has been continuously pushing for M&As. Dow Chemical and DuPont have recently announced that they will merge.

“There is a limit to the growth of LG Chem’s petrochemicals business as the Chinese economy has slowed down. Global chemical companies are reshaping their business portfolios by selling off underperforming divisions and acquiring high-growth businesses. In that sense, the ago-chemical sector is a very lucrative market,” said Lee Ung-joo, an analyst at Seoul-based Shinhan Investment Corp.

Many think that LG Chem’s takeover of Dongbu Farm Hannong will serve as a plus in the chemical company expanding its business from basic materials (petrochemical), information-electronic materials and secondary batteries to agricultural chemistry (e.g. plant seeds and crop protective materials).

Dongbu Farm Hannong, South Korea's largest processor of agricultural materials, takes the largest share of 27 percent in the crop protection chemicals market and the second-largest share of 19 percent in the seed and fertilizer market.

The worldwide agricultural chemistry sector is expected to expand from $100 billion in 2014 to more than $140 billion in 2020, growing, on average, 6 percent annually.