(see sidebar "Merger triggers a security review process" at http://bit.ly/chemchinareview )
By DAVE BLOWER JR.
WASHINGTON, D.C. — A cash buyout offer estimated at $42.8 billion by a Chinese-government-owned chemical company was accepted by Syngenta, a Swiss-based seed and farm chemical company, on Feb. 3.
The China National Chemical Corp., commonly known as ChemChina, has offered $465 per share to Syngenta stockholders. The Syngenta Board of Directors unanimously recommended to its stockholders that they accept this bid.
Syngenta Chief Operating Officer Davor Pisk said last week that the company will prepare a summary prospectus of the deal for stockholders during the next 4-5 weeks. Two-thirds of Syngenta stockholders must approve the buyout bid before the sale can continue. Pisk estimated that the sale may not be complete until the end of 2016 due to clearing necessary regulatory issues.
Pisk said Syngenta will remain headquartered in Switzerland, adding that it plans on maintaining a “business as usual” strategy for its customers, farmers, business partners, employees and communities. “We want to make sure that Syngenta remains Syngenta,” he explained during an international teleconference last week. “We will continue to serve the global agriculture market and growers around the world.”
Syngenta has 28,000 employees in 90 countries. In North America, Syngenta produces major corn and soybean brands such as Agrisure, Golden Harvest and NK. The corporation also makes herbicide brands Acuron, Axial, Callisto – among others – and fungicides such as Elatus, Alto and Bravo. Syngenta’s total sales for 2015 exceeded $13.4 billion.
Pisk said Syngenta’s existing management will continue to run the company. After the sale is complete, a 10-member board will oversee that management. The board will be led by ChemChina Chairman Ren Jianxin. The board will also include four of Syngenta’s current board members.
“The discussions between our two companies have been friendly, constructive and co-operative, and we are delighted that this collaboration has led to the agreement announced (on Feb. 3),” Ren said. “We will continue to work alongside the management and employees of Syngenta to maintain the company’s leading competitive edge in the global agricultural technology field.”
Who is ChemChina?
ChemChina, which is based in Beijing, is the largest chemical company in China and is ranked 265th in the Fortune 500.
This business owns research and development, production and marketing systems in 150 countries and regions. It employs 140,000 people with more than one-third of them outside China.
ChemChina has been in acquisition mode in the past year. In January, ChemChina bought 12 percent of Swiss energy and commodities trader Mercuria. ChemChina recently announced plans to acquire KraussMaffei, which is a German-based manufacturer of plastic and rubber molding equipment.
Pirelli, a company known for making tires for Formula 1 race cars, was bought by ChemChina in March 2015. Syngenta is ChemChina’s biggest acquisition.
Syngenta CEO John Ramsey said this transaction will enable the company to further expand into emerging markets – most notably China.
“Syngenta is the world leader in crop protection having significantly increased its global market share over the last 10 years,” Ramsey said. “This deal will enable us to maintain and expand this position, while at the same time significantly increasing the potential for our seeds business.”
Ren added that Syngenta’s existing customer base remains a priority.
“Our vision is not confined to our mutual interests, but will also respond to and maximize the interests of farmers and consumers around the world,” Ren said.
A sign of the times
ChemChina’s $42.8 billion buyout bid is approximately 20 percent more than the current market value for Syngenta. Farm World ag markets columnist Karl Setzer said China likely wants to provide food security for its people.
“Syngenta has the products ChemChina wants, so to buy the company is cheaper than developing them,” said Setzer who also the risk management team leader for MaxYield Cooperative of West Bend, Iowa.
“It is much easier for two companies to merge and share their technology and resources than develop them on their own,” he added. “As I stated, I believe this is the case between ChemChina and Syngenta.”
Consolidation of companies that service U.S. farmers is a concern for many market watchers.
“The deal is symptomatic of the current state of the ag economy,” said National Corn Growers Assoc. CEO Chris Novak. “Farmers are struggling now, so that affects agribusiness companies whose sales have dropped as farmers have tightened their belts. Layoffs, cost-cutting and mergers will be commonplace until the ag economy turns around from new growth in grain demand.”
Setzer concurred. “I am not surprised. I think we are going to see more and more of this in the very near future,” he said. “Margins are getting tighter and tighter, and we will see more mergers as a result.”
Better deal than Monsanto
After the ChemChina announcement on Feb. 3, Syngenta’s stock increased by 2 percent.
“The news of this potential deal has been highly favorable for Syngenta stock values,” Setzer said.
Yet, as recent as August 2015, Syngenta did not welcome a $47 billion takeover bid by Monsanto, a St. Louis, Mo.-based seed and chemical company. Monsanto has not performed well since being unable to acquire Syngenta. In October 2015, Monsanto laid off 2,600 employees.
“Since the deal fell apart between Monsanto and Syngenta, Monsanto stocks have dropped roughly $12 per share,” Setzer added.
Pisk explained the ChemChina deal is better than the discussions Syngenta had with Monsanto last year.
“First of all, we never had a deal to reject from Monsanto,” Pisk said.
He said the negotiations with Monsanto offered shares in Monsanto stock instead of cash. “There has been a significant decline in Monsanto’s stock value since those discussions ended,” reported Pisk.
He said he was also concerned that a deal with Monsanto would not survive U.S. regulatory challenges among other issues. Pisk isn’t anticipating as many potential problems with the ChemChina deal. “This is an all-cash offer with committed financing,” he said. “This is a much more compelling offer for all of our stakeholders.”