FIVE POINTS, Calif., March 18, 2013 /PRNewswire/ -- S&W Seed Company (SANW) announced, through a press release issued on Sunday, March 17th, that it has agreedtopurchase 100% ofSeed Genetics InternationalPty Ltd("SGI"), subject to due diligence and other customary conditions.The combination of S&W with Adelaide, Australia-based SGI will create the world 's largest non-dormant alfalfa seed company. The transaction, which is valued at approximately $16 million, is scheduled to close in early April 2013 and is expected to be immediately accretive to S&W's earnings.

Mark Grewal, president and chief executive officer of S&W Seed Company, commented, "This pact creates a powerhouse that will be unrivaled in its ability to breed and produce non-dormant alfalfa seed all year round.SGI has a tremendous base of contracted growers, very strong customer relationships, andunique genetics.The sales channels that S&W and SGI sell into are highly complementary,with very little overlap in customers. This move considerably strengthens our reach into Argentina and the rest of Latin America."

Grewal added, "I also want to stress the 'people factor.'S&W is gaining a highly competitive team of veteran seedsmen whom we know well and highly respect. We look forward to collaboration with them in all areas. By putting growers first, SGI's breeding program, initiated by Dr. Ross Downes and now continued by David Pengelly, has created grower-focused varieties that produce more seed per acre for the seed farmer than any other varieties in Australia, adding to seed farmer profits and potentially lowering cost of seed for S&W. We have the opportunity to merge David's work with that of S&W's own VP of Genetics and Breeding, Dan Gardner and our emeritus breeder,Bob Sheesley, who himself did pioneering work in salt tolerance and seed yield."

S&W is paying a purchase price ofapproximately $16million, over half of which consists of 865,000 shares S&W Common Stock and will result in SGI's owners becoming significant shareholders of S&W. The remaining considerationconsists of $5million in cash and$3million in the form of athree-yearpromissory note.Based on unaudited information, SGI hadrevenues of approximately AUD $18million for the fiscal year ended June 30, 2012 andhadpre-tax income of$1.6 million. SGI's assets consist primarily of accounts receivable, inventory, a tenured grower base and intellectual property, such as genetics.S&W intends to file audited financial resultsofSGIno later than 74 daysfrom closing,in compliance with SEC guidelines.

SGIcontrols approximately17,000 acres of irrigated alfalfa seed production under contract, and has first call on another 12,000acres of non-irrigated land that is rain dependent and has intermittent production. Australian seed yields per acre, even on irrigated fields, typically are materially lower than S&W's California yields and production costs are also materially lower.In 2013, SGIcontracted for alfalfa seed production with approximately 140contractfarmersin Southern Australia, all for SGI's proprietary varieties.In fiscal 2012, SGI's growers producedapproximately 5.5 million pounds, concluding a growing season that suffered from the impact of highly adverse weather conditions. The 2013 harvest is currently ongoing, but based on initial estimates, SGI managementis estimating that it will have approximately 8million pounds of alfalfa seed available for sale when the harvest concludes in late April 2013. Actual production could vary materially in either direction from estimates, due to unforeseen weather events and other factors.

SGIsells intointernational markets, includingthe Middle East and Africa (MENA), South America, and Southern Europe with the majority of the company's sales concentrated in the April through September time frame.

SGI was founded in 2002, with the goal of commercializing a seed breeding breakthrough by Dr. Ross Downes. Working with alfalfa in the mid 1990's, Dr. Downes had identified a particular trait that resulted in dramatically increased seed yields, even with less than optimum pollinator activity. The intellectual property stemming from Dr. Downes' pioneering work, which has been protected under international law and the Australian Plant Breeders Rights Act, became the cornerstone for over a decade of development by SGI's David Pengelly. SGI has developed well known proprietary varieties, such asSuperSonic, SuperNova, SuperStar, SuperCharge, SuperAurora, SuperSequal and SuperSiriver. Starting in 2002, the varieties developed by SGI quickly attracted a grower base that by 2012 enabled SGIto exceed 60%of Australian alfalfa seed production.SGI'salfalfa seed varieties are bred to resist disease, have tolerance to salt, create persistence in the field, and produce high seed yields in Australian production.The company also has a number of developments within its breeding program pertaining to dormant alfalfa varieties, tropical alfalfa seed varieties, and ease of pollination.

SGI, like S&W, considers the goodwill of its seed grower base to be of premier importance. SGI's contracts with seedfarmers under long term contracts that typically have initial terms of six years, extendable to ten years. To manage risk for itself and its growers, seed pricing is not fixed by contract, but instead based upon pooled production which is sold over an entire season, with a view to optimizing the prices realized. Due to its Southern Hemisphere location,SGIharvests seed in March through April, which is counter cyclical to S&W's July through October production in the Northern Hemisphere. The combined company will have the competitive advantages of year round production, which extends to all areas of the alfalfa seed business, including sales, inventory management and cash collection cycles.

Mark Harvey,Directorof Seed Genetics International, commented, "First, my thanks to S&W's Chairman, Grover Wickersham, and S&W's CFO, Matt Szot, for their long visits to Australia and their patience in negotiating over the last half year. While this is obviously a big move for us, the directors and management of SGI are trulyexcited about the advantages of a combined S&W/SGI and we want the challenge of continuing to build on what the four partners started."

Mr. Harvey expanded, "For our Australian growers, this means we willbeexpanding production under the umbrella of a public company with a strong balance sheet and financial resources. We also gain access to S&W's proven proprietary genetics. We look forward to collaborating with S&W's well respected breeder, Dan Gardner, who is well known by our own David Pengelly and Ross Downes. When we learned last year that Dan and our tough and respected sales and marketing competitor from IVS, Fred Fabre, had both joined S&W, it piqued ourinterest."

More:
Investor Advisory: S&W Seed Company To Acquire Seed Genetics International

Comments are closed.