DuPont Ready to Play Part in Reshaping Global Seeds Industry

  • Dow Chemical, Monsanto also considering crop-chemical deals
  • `Everyone is talking to everyone' about consolidation

Less than two weeks after taking over as interim head of DuPont Co., Ed Breen is ready to play his part in reshaping the global market for seeds and crop chemicals.

Breen said Tuesday he’s in discussions about potential deals involving his company’s agriculture business, which had $11.3 billion of revenue last year. Industry consolidation should happen, he told analysts and investors on a conference call.

The comments echo those of Andrew Liveris, the CEO at Dow Chemical Co., who said last week he’s weighing options for his company’s agriculture business, and that “everyone is talking with everyone.” The rush of negotiations come in the wake of a drop in commodity prices that has forced companies to rethink their structure and leadership.

Monsanto Co., the world’s biggest seed company, said this month it’s searching for an acquisition, despite withdrawing its $47 billion offer to buy pesticide maker Syngenta AG in August. That doomed takeover was the trigger for the current round of high-level talks between major industry players, according to Liveris.

Depressed Prices

The number of large companies producing seeds and pesticides may drop to four by 2020 from six now, said Jonas Oxgaard, a New York-based analyst at Sanford C. Bernstein & Co. “There will be two players with scale in seeds and crop protection and two players stuck on the sidelines,” he said by phone. “When the music stops, you want to have a chair.”

Interest in acquisitions has also been driven in part by depressed commodity prices that have stalled growth in what had previously been a robust sector, said Kelly Wiesbrock, a San Francisco-based portfolio manager at Harvest Capital Strategies. Companies with stronger balance sheets and access to low-cost debt will try to buy growth while weaker competitors faced with a prolonged down cycle may exit the industry, he said.

“Once it starts happening, the stronger players emerge, and if you’re not going to be a stronger player, you are going to be at a disadvantage,” Wiesbrock said by phone Tuesday. “Standing still is not an option.”

Consolidation ‘Inevitable’

The number of pending, completed or proposed agriculture-chemical deals is already heading for the highest in at least 12 years, according to data compiled by Bloomberg. The list excludes Monsanto’s rejected offer for Syngenta, which would have been the industry’s largest takeover. Among the deals in 2015 that are still going ahead is U.S. fertilizer maker CF Industries Holdings Inc.’s $5.4 billion purchase of assets from Dutch competitor OCI NV.

Monsanto CEO Hugh Grant said earlier this month he’s still searching for deals because consolidation is “inevitable.” Syngenta, despite rejecting Monsanto’s advances, may yet participate in the dealmaking after the resignation last week of its CEO, according to Oxgaard.

‘Deep Dive’

The departure of DuPont CEO Ellen Kullman this month may clear the way for a separation of its agriculture business, the world’s-second biggest seed supplier, according to analysts including David Begleiter at Deutsche Bank AG. On Tuesday the unit posted a third-quarter operating loss of $210 million. DuPont said the segment will also lose money this quarter, the first time that’s happened in the period in three years, because of the dollar’s strength and lower pesticide demand in Brazil.

Despite the speculation, there’s no certainty any large deal will happen soon. Liveris told analysts last week on a conference call that nothing is imminent for Dow. Breen, a former CEO of Tyco International Ltd., said that any deal for DuPont’s agriculture unit must create long-term value for shareholders, not “some overnight pop.” He’s also conducting what he described as a “deep dive” at DuPont to boost shareholder value, looking for further operational cost cuts. DuPont’s capital expenditure, he said, has been too high.

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