BASF SE is more likely to go after Syngenta AG’s seed business than the whole company.
Syngenta climbed on Thursday amid reports that BASF is speaking to bankers about bidding against Monsanto Co. for the Swiss company. While Syngenta rebuffed Monsanto’s 41.7 billion-franc ($45 billion) offer in May, the two are still talking and working to resolve antitrust concerns.
BASF, meanwhile, is on the lookout for assets that would have to be divested if Monsanto succeeds in a Syngenta takeover, people familiar with the matter said. The German company hasn’t made any concrete decisions about what it will do, but is unlikely to bid for all of Syngenta, said the people, who asked not to be identified.
Pushing for all of Syngenta would require BASF to issue equity -- something it hasn’t done since 1865, said Thomas Gilbert of UBS Group AG. The company would also need to overcome antitrust hurdles that could be more daunting and less easily remedied than those facing Monsanto. BASF and Syngenta have significant overlap in the crop-protection market, especially in fungicides.
“It doesn’t make any sense at all that BASF would go for Syngenta as a whole,” said Christian Faitz, a Frankfurt-based analyst at Kepler Cheuvreux. “From a regulatory point of view, that would be a complete no-go. But they are the hottest candidate for the seeds assets.”
Spokesmen for Basel, Switzerland-based Syngenta and St. Louis-based Monsanto declined to comment. A representative for BASF, based in Ludwigshafen, Germany, also declined to comment. Its shares traded 0.7 percent lower as of 9:57 a.m. in Frankfurt. Syngenta was down 3.1 percent.
Monsanto has said it’s prepared to sell Syngenta’s seed business to help appease regulators. BASF already provides research and technology for a Monsanto seed alliance so it may get the first right of refusal for buying that division, according to Gilbert of UBS.
Among the top agricultural chemical makers, BASF is the only one without a noteworthy seed business of its own. It has largely focused on developing the active ingredients and technology to supply seedmakers through partnerships, such as the one with Monsanto. It was the simpler path for a company that had struggled to commercialize its genetically modified Amflora potato in its home European market where consumers, farmers and politicians have largely rejected the technology.
“I’ve never been a big believer in the integrated strategy of having chemicals and seeds in markets like Europe and the U.S.,” said John Klein, a London-based analyst at Berenberg. “Now that Monsanto is saying it wants it, BASF might feel it doesn’t want to be left out.”
Syngenta’s seed business could fetch 2.5 to 3 times sales, Faitz of Kepler Cheuvreux estimated. That could work out to an enterprise value of about $9 billion to $9.5 billion, depending on what research facilities are included in the package of assets, he said. Buying the seed division would be easier for BASF to finance than a full Syngenta takeover, Jeremy Redenius of Sanford C. Bernstein & Co. said in a June 4 report.
BASF has a market value of about 76 billion euros ($85 billion).
The other most logical suitor for Syngenta’s seed assets is Bayer AG, which has nurtured its seed operations, finding parallels with its drug and life-science business. Chief Executive Officer Marijn Dekkers has outlined plans to grow in soybean seeds and developed biotechnology to pursue that goal.
Over the past five years, Bayer has doubled the size of its seeds business to 1 billion euros ($1.1 billion), yet that division remains dwarfed by Monsanto’s operation, according to Klein of Berenberg.
Forced to Act
Monsanto making a move for Syngenta would force both Bayer and BASF to decide on their strategy for seeds.
Almost a century after founding an agricultural center in Limburgerhof, BASF moved its plant-science division to the U.S. in 2012. The 11,000 square meters of greenhouses and about 40 hectares of fields were turned over to crop-protection activities. Partnerships with KWS Saat AG and Monsanto, which produced a drought-tolerant corn trait, remained intact.
“It’s very difficult to make a break-through acquisition on the seeds side,” said Klein. “Monsanto is forcing them to act in a way.”
A representative for Bayer said the company doesn’t comment on speculation. The stock fell 1.3 percent to 127.2 euros.
DuPont Co. and Dow Chemical Co. have been mentioned as other possible bidders for Syngenta’s seed operations, but the former may face antitrust challenges and the latter may be more likely to divest its agricultural chemical business than bulk it up, said Faitz of Kepler Cheuvreux.
If Dow were to bid, it would probably be drawn to different assets than Bayer and BASF, Klein of Berenberg said. That could create a situation where one company buys the entire seed business and later sells assets that don’t fit with its portfolio.
“You could see a multiyear shifting of assets,” he said. “BASF could buy the whole of Syngenta seeds with a view to splitting it up and selling bits individually. That approach would be too time consuming for Monsanto and Syngenta.”
BASF may be keen on the vegetable-seed business because of its strength in fungicides, which are used widely in such crops. Soybean and cereal seeds would be attractive to Bayer, while Dow could offer a home for the highly competitive corn-seed business, a market where it needs to expand its client base to leverage technology developed in its research laboratories.
A spokeswoman for DuPont said the company is keeping its options open. A representative for Dow didn’t respond to requests for comment.