- Acquisition would be biggest ever by a company in China
- Deal underscores China's ambitions about food security
China National Chemical Corp. agreed to buy Swiss pesticide and seeds maker Syngenta AG for more than $43 billion in cash as the state-backed company extends its shopping spree with what would be the biggest acquisition by a Chinese firm.
ChemChina, as the closely-held company is known, offered $465 a share in cash, according to a statement on Wednesday. The offer, endorsed by Syngenta’s board, is about 20 percent higher than the stock’s last close.
Syngenta shares rose 3.8 percent to 407 Swiss francs ($402) at 3:49 p.m. in Zurich, remaining below the offer price amid concern the takeover could be delayed by U.S. regulators.
“Political headwinds, in particular from the U.S., could make the takeover process more lengthly than initially expected,” Ute Haibach, analyst at J. Safra Sarasin, wrote in a note. “The Committee for Foreign Investment in the U.S. will likely watch the transaction closely as China’s domestic seed market is broadly closed to U.S. companies.”
If completed, the deal would help Chairman Ren Jianxin transform ChemChina into the world’s biggest supplier of pesticides and agrochemicals, while snatching an asset coveted by St. Louis-based Monsanto Co. It also underscores the importance China attaches to owning seed and cropcare technology that can boost agricultural output and help feed the world’s biggest population.
- The deal is expected to close by the end of the year
- A special dividend of 5 Swiss francs a share will be paid if the deal closes
- ChemChina plans to keep Syngenta’s management, with Ren chairing a 10-person board that will include four of the existing Syngenta board members
- ChemChina will also evaluate a possible initial public offering for the business "in the years to come"
- Deal breakup fee about $3 billion for ChemChina, $1.5 billion for Syngenta
- Dyalco, JPMorgan Chase & Co., Goldman Sachs Group Inc. and UBS Group AG served as financial advisers to Syngenta on the transaction. HSBC Holdings Plc and China Citic Bank International Ltd. advised ChemChina
Syngenta had sales of $13.4 billion in 2015, mainly from crop protection such such as pesticides and the seeds business. Bolstering agrochemicals would help ChemChina reduce its reliance on petrochemical and petroleum products, which accounted for almost half of the 256.4 billion yuan ($39 billion) in revenue it had in 2014, the latest annual figures available for the company.
Behind the Chinese company’s pursuit are national interests. 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. The World Bank estimates that China’s arable land declined 6 percent in the last decade as economic growth boomed.
"We will help the Chinese government to learn,” Chief Executive Officer John Ramsay said in a phone interview. There’s a lot of potential to "improve the quality and technology for Chinese farmers,” he said.
As well as domination of the Chinese market, Syngenta will provide global access to farmers from Brazil to the U.K. Helping execute that vision is Ren, a 58-year-old executive who started China’s first professional cleaning company with a 10,000 yuan loan and is now emerging as one of the country’s most active dealmakers.
Syngenta Trumps Past Deals
Syngenta would trump all past deals in a country whose appetite for foreign assets is surging. ChemChina’s latest purchase follows other Chinese overseas transactions 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.
In 2016 alone, ChemChina, whose holdings include storied Italian tiremaker Pirelli & C. SpA, led a group that agreed to buy German machinery maker KraussMaffei Group for 925 million euros ($1 billion) and it acquired 12 percent of Swiss commodity trader Mercuria Energy Group Ltd.
Prior to that, purchases have included Adisseo Group in France to Australia’s Qenos Holdings Pty and Norway’s Elkem AS. The company has announced more than $15 billion of deals in the past decade, excluding Syngenta, according to data compiled by Bloomberg.
For Syngenta, led by Ramsay and Chairman Michel Demare, the agreement caps months of discussions and wider speculation about its future. ChemChina was said to have previously offered about 449 francs a share and Syngenta last year rejected a 470-franc-a-share offer from Monsanto. Strategically, the Swiss company will get improved access to emerging markets at a time when the planned combination of Dow Chemical Co. and DuPont Co. threatens to create a new powerhouse in agricultural products.
Pressure is also building on Monsanto. Its market-leading position in genetically-modified seeds is threatened by the creation of a Dow-DuPont giant when the merger is completed in the second half of this year. As recently as November, Monsanto said it was discussing internally the merits of a new offer for the Swiss company as well as opportunities to acquire crop-chemical assets from other companies.
“Monsanto are likely to struggle to match the price and cash component of ChemChina’s bid, despite the deal creating significant synergies,” Bernstein analyst Jeremy Redenius wrote in a note Wednesday. “Monsanto and BASF may look to combine in some way.”
ChemChina is paying 17 times Syngenta’s trailing 12-month earnings, exceeding the multiples paid in 10 comparable deals, according to data compiled by Bloomberg.
A ChemChina deal would be the easiest transaction to get by antitrust regulators as the combination with the Chinese company’s existing agrochemical business, Adama, would still only result in 19 percent market share, Andrew Benson, an analyst at Citigroup Inc., said in a note Monday. Some disposals of fungicides and herbicides may be required.
The takeover would likely need to win clearance from the Committee on Foreign Investment in the U.S., which would review whether the deal would compromise American food security and whether the combined company’s locations would be too close to U.S. military bases, according to several lawyers who deal with security reviews for such cross-border transactions. Even though Syngenta isn’t based in the U.S, it does have North American operations that generated $3.6 billion in sales last year.
CFIUS pays particular attention to acquisitions by Chinese investors, especially deals involving U.S. technology. But all industries are subject to scrutiny, including agriculture.
“There are no major obstacles,” Syngenta’s Demare said at a press conference in Basel. “The way the whole industry is consolidated, it’s better because we remain independent.”