S&W Seed Co. (SANW) announced that it has agreed to acquire 100% of Seed Genetics International Pty Ltd or "SGI", subject to due diligence and other customary conditions, for approximately $16 million. The transaction is scheduled to close in early April 2013 and is expected to be immediately accretive to S&W's earnings.
The company is paying a purchase price of about $16 million, 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 consideration consists of $5 million in cash and $3 million in the form of a three-year promissory note. Based on unaudited information, SGI had revenues of approximately A$18 million for the fiscal year ended June 30, 2012 and had pre-tax income of $1.6 million.
SGI controls approximately 17,000 acres of irrigated alfalfa seed production under contract, and has first call on another 12,000 acres 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, SGI contracted for alfalfa seed production with approximately 140 contract farmers in Southern Australia, all for SGI's proprietary varieties. In fiscal 2012, SGI's growers produced about 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 management is estimating that it will have approximately 8 million pounds of alfalfa seed available for sale when the harvest concludes in late April 2013.
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