ChemChina buys Syngenta

Growers should be happy that ChemChina is acquiring Syngenta instead of Monsanto, says Syngenta’s chief operating officer.

“What is particularly pleasing about this particular outcome from my point of view is that it helps to preserve choice for growers at a time when in our industry we’re seeing a lot of consolidation,” Davor Pisk told reporters during a conference call.

Syngenta’s board of directors has unanimously approved ChemChina’s cash offer valued at more than US$43 billion to acquire 100 percent of Syngenta’s shares.

The transaction requires approval by two-thirds of Syngenta’s shareholders. It also requires regulatory approval. Pisk expects the deal to close before the end of 2016.

ChemChina is the largest chemical corporation in China. The state-owned firm generated $45 billion of sales in 2015 and ranks 265th on the Fortune 500.

Monsanto had been in discussions with Syngenta for a share and cash offer worth $47 billion. However, Pisk said its competitor did not table a formal offer.

“With a merger between Monsanto and Syngenta we would have had one less player in an industry that is already now getting further concentrated following the Dow and DuPont announcement,” he said.

Dow and DuPont announced in December they were merging to form DowDuPont with a combined value of $130 billion.

Pisk said a takeover by Monsanto would have resulted in “cost synergies,” which means job losses and streamlined product offerings.

Eric Johnson, weed science research assistant at the University of Saskatchewan and former Agriculture Canada weed biologist, agreed that a deal with Monsanto might not have been in the best interest of growers.

“It’s possible you would be down to three really big companies and that could conceivably reduce competition, that’s for sure,” he said.

Syngenta is the world’s top seller of crop protection products. The company posted sales of $11.4 billion in 2014, which gave it a 20 percent share of the market followed by Bayer at 18 percent and BASF at 13 percent.

It is also the third largest seed company with sales of $3.2 billion in 2014 for an eight percent market share behind DuPont at 20 percent and Monsanto at 26 percent.

Johnson said the company offers a broad spectrum of crop protection products.

“They have good herbicides, good fungicides and insecticides. So they’re a major player in all three,” he said.

ChemChina is the majority owner of ADAMA, a manufacturer of generic agrochemicals that ranked seventh on the 2013 list with $2.9 billon in sales.

Clark Brenzil, weed control specialist for Saskatchewan Agriculture, isn’t convinced the Monsanto takeover would have been that bad for growers.

He said Monsanto is more of a seed and traits company these days. It has largely exited the pesticide business with the notable exception of glyphosate, so there would have been little product overlap.

Brenzil also doesn’t anticipate producers will notice much consolidation in product lines with ChemChina owning both Syngenta and ADAMA because Syngenta tends to focus on patent protected products while ADAMA’s specialty is generics.

For instance, for herbicides containing the active ingredient clodinafop, Syngenta sells Horizon while ADAMA markets the generic product Ladder.

“The two compete directly against nine other products, so if you lose one of those products there’s still lots of selection around for the producer,” he said.

“I think there is plenty of competitive pressure around that you’re not going to see a spike in prices.”

Pisk said there were financial and regulatory reasons why ChemChina’s offer was preferable to pursuing a deal with Monsanto.

It was an all cash offer compared to Monsanto’s share and cash proposal. He pointed out Monsanto’s share price has decreased 25 to 30 percent since the discussions took place.

And there is little overlap between the asset portfolios of Syngenta and ChemChina compared to significant overlap with Monsanto.

“What we were certainly concerned about with any potential offer from Monsanto were the regulatory clearances that would be required, which would be quite significant challenges,” he said.

Monsanto says it will continue to focus on its “strong stand-alone growth plan” and will remain disciplined when it comes to any future acquisitions.

“This latest announcement does not change our view on our leadership position in the industry,” said Monsanto Canada spokesperson Trish Jordan.

“We believe we’ll remain the innovation partner of choice given the breadth and depth of our business and pipeline.”

Syngenta will continue to operate as a stand-alone company based out of Switzerland.

The existing management will stay on to run the company. Four members of Syngenta’s existing board of directors will sit on the new 10-member board chaired by Ren Jianxin, who is also chair of ChemChina.

There is expected to be minimal disruption to Syngenta’s existing operations, and it will continue to spend nine to 10 percent of annual revenues on research and development.

“One area that we’ve been very clear on is that the future of Syngenta will require a commitment to maintaining levels of research and development spending in line with what we have today,” said Pisk.

Jianxin expanded on that statement in a video interview posted on the company’s website.

“For ChemChina this acquisition is about growth and innovation. We will support continuing investment to ensure that growth,” he said in the English translation of the video.

He also talked about ChemChina’s vision for Syngenta.

“We see big opportunities for the company to expand its presence in emerging markets and notably China where there is rapid modernization driven by the need to increase grain production and increase food quality,” said Jianxin.

Pisk was asked if the new association with ChemChina will improve the company’s ability to get its genetically modified crops through China’s cumbersome and complicated regulatory system.

He said it wouldn’t expedite the process but it may provide a better opportunity to discuss the system with Chinese officials.

“Maybe we can understand the issues better than we could if we were completely on the outside looking in,” said Pisk.

“We can be more effective at getting our point of view across and on influencing as well over the long-term.”

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