Syngenta – Monsanto Merger Fate In A Fix

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May 11, 2015

The global Swiss agribusiness company Syngenta AG (SYT, Financial) declined to accept deal worth $45 billion with American multinational agrochemical and agricultural biotechnology corporation Monsanto (MON, Financial) stating the deal price is insufficient and also holds regulatory risks. The valuation of Syngenta at 449 Swiss francs ($486.35) per share was turned down by the company, which Monsanto had agreed to pay in 45% cash.

The turnaround by Syngenta

Founded in 2000, the Switzerland based Syngenta AG is involved in biotechnology and genomic research. Formed by the merger between Novartis Agribusiness and Zeneca Agrochemicals, the company has a superior position in seeds and biotechnology sales in the commercial market. On the other hand, the U.S.-based leading producer of genetically engineered (GE) seed and of the herbicide glyphosate Monsanto was founded in 1901. The reason why the latter showed interest in acquiring the former was its strong presence in the Swiss market, which will enable Monsanto to establish itself there as well as leverage from the lower tax slabs of Switzerland.

Around end of April, the two companies were said to be in confirmed talks regarding the deal, which also led to a surge in Syngenta’s shares to a record high of 351 Swiss Francs on May 4. The deal had reached a stage wherein the two were even in talks with investment banks. While Syngenta had consulted Goldman Sachs (GS, Financial) for the assessment of the advantages of the sale, Monsanto had entered talks with Morgan Stanley (MS, Financial) for the same. The acquisition news had come as profiteering for Syngenta as its shares rose 17% to 390 Swiss francs after the bid approach was confirmed. The deal’s 45% was going to be in cash as U.S. treasury had been discouraging such moves known as tax inversion by making it mandatory to carry the deal in cash rather than stock transaction which will make it impossible for it to redomicile in Switzerland.

Had the deal taken off, it would have created a huge singular company with combined sales worth more than $31 billion. However, as of now, Syngenta has urged to be worried about ‘execution risks including regulatory and public scrutiny at multiple levels in many countries.’

Advantages for Monsanto

Syngenta AG is an important player in the industry doing heavy research and development (R&D) investments in crop technology to boost the average productivity of crops including corn, soybeans, sugarcane and cereals. On the other hand, Monsanto focuses on conventional and biotech seeds and has raised its expenditure in R&D from $1.5 billion in 2013 to $1.7 billion in the last fiscal year. Syngenta’s crop protection technology is exclusive to it and makes it a key reason for Monsanto to eye for a deal. Monsanto’s approved GM product, modified maize, approved for cultivation in EU will make an easy entry as the changed legislation has allowed for the cultivation of genetically modified (GM) crops in EU.

Possibility of stronger bidders

Syngenta has cited regulatory reasons for tuning down the offer of a merger between the two companies, which might be challenged by antitrust regulators especially in North America where the two have established themselves as market leaders in the seeds industry.

Apart from the aforesaid reasons, there have been speculations made on possible higher bidding companies, which has led to a halt in the deal. BASF (BASFY, Financial), the German-based chemical company, and Dow chemical, U.S. petrochemicals group have been named as possible bidders. Another possible taker could be the state owned firm China National Chemical Corp, who is looking forward to expand its reach in the European market. This however looks doubtful, as Syngenta might not hand it over to an Asian rival.

Deal or no deal?

Whether or not the deal materializes, as of now, Monsanto is confident of winning it soon. Analysts are also of the view that Monsanto might revise the bid value to $50 billion and Syngenta might give in as well amidst pressure from currency slowdown.