Syngenta AG Chief Executive Officer Mike Mack, having fended off Monsanto Co.’s $47 billion takeover attempt, needs to convince disappointed shareholders that the Swiss agrochemical maker will ultimately be better off as a standalone company.
Investors’ focus should be on the Syngenta management team and “the opportunity and ability” to create value, said Citigroup analyst Andrew Benson, adding that a key date will be the research and development investor day scheduled for Sept. 16. Shares of the insecticide and seed maker dropped 18 percent yesterday after Monsanto called off its pursuit, their steepest ever decline. They recovered as much as 5.2 percent today.
Having succeeded in defending the company in a battle lasting more than a year, Mack faces will again be tested as he confronts a shareholder base that partly backed engaging with Monsanto. The Basel-based company has said a product pipeline stretching to the end of the decade and positive first-half earnings prove it can hold its own in the agrochem industry.
“Pressure on management will be high,” said John Klein, a London-based analyst at Berenberg Bank. “Mack will need to deliver on his strategy, and deliver very quickly.”
A sweetened 470 franc-a-share bid, with a $3 billion break fee, failed to result in any “constructive engagement” from its target, Monsanto said in a statement. Syngenta traded 16.2 francs higher at 326.1 francs as of 10:14 a.m.
The Swiss company portrayed an alternative view of Monsanto’s approach, which it said was pitched verbally. A cash component of 245 francs and a fixed ratio of 2.229 Monsanto shares per Syngenta share that at market close on Aug. 25 equated to a total 433 francs per share, it said.
The board did engage with the approach, yet unanimously rejected it for ’’significantly’’ undervaluing the company, according to a statement from Syngenta. It also highlighted the execution risk and the lack of detail concerning how the group would look post merger.
“We engaged with Monsanto in good faith and highlighted those key issues which required more concrete information in order to continue a dialogue,” Chairman Michel Demare said in the statement. “Our board is confident that Syngenta’s long-term prospects remain very attractive.”
Call for Clarity
While the Swiss company bemoaned a lack of clarity from its suitor, some of its own investors have criticized the company for not indicating what it viewed the right offer price for negotiations to start, and outlining a plan for a U.S. seeds business that some see as sub-scale.
A survey of 100 current and former investors of Syngenta by Sanford C. Bernstein published this month showed about 92 percent of respondents supported talks. A deal would have turned Monsanto, a U.S. maker of genetically modified seeds and weedkillers, into the largest player in both seeds and crop chemicals. It timed its approach with a lull in Syngenta’s share price amid currency moves and lower crop prices.
A higher break fee was required given the likelihood of regulatory challenges, even with the proposed sale of the seeds business and overlapping chemistry assets, Citi’s Benson said in a note. In parting comments, Monsanto added it continues to believe a combination would have created “tremendous value.”
“Monsanto seemed to leave the door open for a negotiation should Syngenta’s board change its mind, or its shareholders force the issue,” said Jeremy Redenius, an analyst at Bernstein. “We think it is still possible that investors push for an extraordinary general meeting to drive Syngenta to negotiate with Monsanto or change the management team.”
Mack’s strategy included reorganizing Syngenta’s agrochemicals and seeds portfolio in order to give farmers an offering of products targeted to their specific needs, whether they grow corn or vegetables or another crop.
The planned divestment of a flower-seed asset could indicate the potential for a broader revisiting of the business strategy and or alignment, according to Citi’s Benson.
“The pressure has been on management for several years after they disappointed on margins, and partly on growth, and what has come to light in the last few weeks shows that they are quite firmly in the saddle,” Klein said.