Adecoagro Prices IPO at Low End of Range

Jan.28.11 | About: Adecoagro S.A. (AGRO)

Adecoagro S.A. (NYSE:AGRO), a South American-based agricultural company, priced its IPO on January 27 at the low end of its revised range at $11 per share with first-day return of 9.1%.

Business Overview (from prospectus)

We are a leading agricultural company in South America, with operations in Argentina, Brazil and Uruguay. We are currently involved in a broad range of businesses, including farming crops and other agricultural products, cattle and dairy operations, sugar, ethanol and energy production and land transformation. Our sustainable business model is focused on (i) a low-cost production model that leverages growing or producing each of our agricultural products in regions where we believe we have competitive advantages, (ii) reducing the volatility of our returns through product and geographic diversification and use of advanced technology, (iii) benefiting from vertical integration in key segments of the agro-industrial chain, (iv) acquiring and transforming land to improve its productivity and realizing land appreciation through strategic dispositions; and (v) promoting sustainable agricultural production and development.

Offering: 28.6 million shares at $11 per share. Net proceeds of approximately $230 million will be used to finance part of construction of sugar and ethanol mill in Brazil, and approximately $145 million for business expansion.

Lead Underwriters: Credit Suisse (NYSE:CS), Morgan Stanley (NYSE:MS), Deutsche Bank Securities (NYSE:DB), Itau BBA

Financial Highlights:

Revenue increased 38.8%, from $125.3 million in the nine-month period ended September 20, 2009, to $173.9 million in the nine-month period ended September 30, 2010...Cost of revenue increased 28.9%, from $106.4 million in the nine-month period ended September 30, 2009, to $137.2 million in the nine-month period ended September 30, 2010...General and administrative expenses remained essentially unchanged from $41.8 million in the nine-month period ended September 30, 2009 to $41.6 million in the nine-month period ended September 30, 2010...Selling expenses increased 59.4%, from $20.6 million in the nine-month period ended September 30, 2009 to $32.8 million in the nine-month period ended September 30, 2010...Loss for the period increased 401.1%, from $17.8 million in the nine-month period ended September 30, 2009 to $89.2 million in the nine-month period ended September 30, 2010...

Competitors

The farming sector is highly fragmented. Although we are one of South America’s leading producers, due to the atomized nature of the farming sector, our overall market share in some of the industries in which we participate is insubstantial. Our production volume, however, improves our ability to negotiate favorable supply, transportation and delivery logistics with our suppliers, third-party transporters, ports and other facilities, and customers. Although competition in agriculture varies considerably by product and sector, in general, there are a large number of producers, and each one of them controls only a small portion of the total production. Therefore individual producers often have little influence on the market and cause little or no effect on market prices as a result of their individual strategies, explaining why producers are price takers and not price makers. In many cases, the price is established in international market exchanges. As the majority of agricultural products are commodities, which stifles product differentiation, the principal competition factors are cost of production and volume efficiency gains. In addition, agricultural producers face strong foreign competition, and with this competition the factors are often more difficult to identify. The majority of farming producers in developed countries can rely on specific protectionist policies and subsidies from their governments in order to maintain their position in the market. In general, we have been able to obtain discounts for the acquisition of supplies and excess prices for our production in the farming sector. In this sector, we view SLC Agrícola (OTC:SLCJF), Brasilagro (OTC:BRCPF), Sollus, Radar, El Tejar, Cresud (NASDAQ:CRESY), MSU and Los Grobo, among others, as our competitors. We also compete in Argentina with retailers of agricultural products, including other branded rice products, such as Molinos Río de la Plata, Dos Hermanos, Sagemuller and Villa Elisa.

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