U.S. Security Concerns Could Stand in the Way of ChemChina's Syngenta Bid

U.S. Regulators Could Block ChemChina Deal
  • Syngenta's U.S. sites may draw scrutiny from security panel
  • Cfius review would come as China's overseas investment rises

For the Chinese chemical giant planning to absorb a Swiss seed and pesticide company, the toughest scrutiny may come from American officials.

A U.S. national security watchdog is likely to look closely at China National Chemical Corp.’s takeover bid of Syngenta AG on two fronts -- whether such a deal would compromise American food security and whether the combined company’s locations would be too close to U.S. military bases, said several lawyers who deal with security reviews for such cross-border transactions.

Basel, Switzerland-based Syngenta has several U.S. research and production facilities, which may draw interest from the Committee on Foreign Investment in the U.S., the lawyers said. CFIUS, led by the Treasury Department and including Defense and State department officials, reviews acquisitions of U.S. businesses by foreign investors and can recommend the president block transactions it deems compromising to national security.

ChemChina and Syngenta officially announced its $43 billion tie-up plan on Wednesday. The companies will make a voluntary filing with CFIUS “even though no obvious national security concerns were identified during due diligence,”  Syngenta said in a statement. “There are no major obstacles,” Syngenta Chairman Michel Demare said at a press conference in Basel.

Syngenta has a crop-protection manufacturing facility in Louisiana, a crop genetics research facility in North Carolina and a diversified chemical formulating facility in Omaha, Nebraska, with more than 2 million gallons of chemical storage. The company generated 75 percent of its revenue in 2014 from crop-protection products such as pesticides, followed by its seed business. 

U.S. government agencies have considered food supply as potentially constituting critical infrastructure, and could look carefully at the new stewards of Syngenta’s seed technologies and pesticides, said Anne Salladin, a lawyer at Stroock & Stroock & Lavan LLP in Washington.

"There is a particular focus by CFIUS on critical infrastructure these days, and there is nothing that would prevent it from looking at food safety as a potential national security risk," said Salladin, who worked on CFIUS reviews while at the Treasury Department.

‘Talking About Food’

Ultimately, a Chinese takeover of Syngenta probably wouldn’t raise national security concerns that are serious enough to scuttle the deal, said Harry Clark, a lawyer at Orrick, Herrington & Sutcliffe LLP, who advises companies on CFIUS reviews. CFIUS reviews are confidential even after they are completed.

The committee would likely want to examine the deal so “it can’t be criticized for failing to scrutinize a Chinese acquisition of this magnitude,” Clark said. “You’re talking about food, and that resonates.”

The acquisition would help transform state-owned ChemChina into the world’s biggest supplier of pesticides and agrochemicals. It comes as rising Chinese investment in U.S. firms has forced U.S. officials to balance the need for foreign investment with a mandate to protect national security.

Golf Courses

The proposed takeover underscores the importance China attaches to owning seed and crop-care technology that can help feed the world’s biggest population. Chinese President Xi Jinping is trying to boost agricultural output to maintain self-sufficiency as a growing middle-class consumes more grain-intensive meat and farmland is converted to housing and golf courses.

One of the biggest issues for CFIUS in recent years has been reviewing proximity of acquired sites to U.S. military bases, said Jennifer Rie, an analyst with Bloomberg Intelligence in New York.

In 2009, CFIUS opposed an attempt by China’s Northwest Non Ferrous International Investment to acquire Firstgold Corp., which had property near Fallon Naval Air Station in Nevada. The Chinese company pulled out of the deal. In 2012, President Barack Obama blocked Chinese-owned Ralls Corp. from building a wind farm near a naval base in Oregon.

CFIUS approved the acquisition of U.S. assets of Canadian energy company Nexen Inc. by Cnooc Ltd., China’s biggest offshore oil and natural gas producer. Cnooc was barred from operating oilfields in the Gulf of Mexico under the accord, due to their proximity to the U.S. Naval Air Station Joint Reserve Base at Belle Chasse, Louisiana, about 50 miles (80 kilometers) away, Bloomberg reported at the time. 

That base, outside New Orleans, is about 80 miles from a Syngenta crop-protection manufacturing facility in St. Gabriel, Louisiana.

ChemChina’s latest purchase follows other Chinese outbound deals this year including Haier Group Corp.’s $5.4 billion purchase of General Electric Co.’s home-appliance business to Dalian Wanda Group Co.’s deal to buy control of Legendary Entertainment. This year’s tally is on pace to exceed 2015’s record $123.9 billion, according to data compiled by Bloomberg.

CFIUS in 2013 cleared China’s Shuanghui International Holdings Ltd.’s acquisition of pork producer Smithfield Foods Inc. despite political opposition over food-security concerns.

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