Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Syngenta actually did pretty well for its investors by holding out.

Times Change
The drop in Monsanto's shares has eroded the value of a stock-and-cash bid for Syngenta once worth 470 francs a share.
Source: Bloomberg

The world's largest pesticide maker is close to announcing an agreement to sell itself to ChemChina for about 470 Swiss francs a share, people familiar with the matter told Bloomberg News. That's the same price that Syngenta had rejected as too low back in August when U.S. seed company Monsanto was the one doing the bidding -- with one big difference: ChemChina is offering all cash, while Monsanto's proposal included cash and a portion in its own shares.

Syngenta took a lot of heat from its investors for not engaging with Monsanto about a possible deal. But it looks like the strategy paid off in this case. The company cited the global market rout as one of its reasons for rejecting Monsanto's stock-and-cash offer (that said, it may be giving Syngenta too much credit to say it was completely prescient about how bad things would get). Sure enough, Monsanto shares have slumped about 13 percent since the beginning of August amid a slump in commodities prices. What was worth 470 francs a few months ago isn't worth that today.

ChemChina's bid, meantime, is guaranteeing Syngenta investors a higher price than the stock had ever reached on its own -- or was likely to any time soon.  This is the definition of selling high.

Sell High
Syngenta shareholders are poised to cash out at higher price than the stock has ever reached in trading.
Source: Bloomberg


Whether this is a great idea for ChemChina is another question. The reported bid values Syngenta at around 46 billion francs ($45 billion) including net debt.  That works out to about 17 times Syngenta's projected Ebitda for 2015 -- almost double the median multiple paid for big chemical deals in the last decade, according to data compiled by Bloomberg. It's not entirely clear how ChemChina intends to pay for this pricey bid, either. The petrochemical company is already highly levered so will probably need some help from its state backers as well as other lenders. (As a side note, this is a big win for the European investment banks that may be tapped to fund the massive deal as revenue from other parts of their business declines.) 

The Chinese government is likely more than willing to pony up some cash for this deal, given the country's interest in becoming more agriculturally self-sufficient. But the involvement of state entities could raise issues for U.S. antitrust regulators as agriculture can be considered a national security interest. While ChemChina's relatively small agricultural presence gives it a better shot at getting a deal approved from an antitrust standpoint than seed giant Monsanto, regulators can be unpredictable, especially when China is involved. Philips recently had to cancel plans to sell its lighting components business to a group led by China's GO Scale Capital amid pushback from the U.S.

The big question on everyone's minds is going to be whether Monsanto tries to reassert itself with a counterbid for Syngenta. That wouldn't be a very wise move. Offering much more than its previous proposal starts to look questionable and expensive -- even with the massive synergies at stake. Monsanto also doesn't have the backers ChemChina does and won't be able to come up with $40 billion-plus in cash without significantly increasing its debt load. 

Monsanto missed out on other possible deals when Dow and DuPont -- whose agricultural businesses were speculated as potential targets for the company -- announced plans to combine with each other instead. Bayer's crop chemicals business is still out there, though the company says it's not interested in selling that division.

Despite kicking off the recent round of agricultural consolidation, it looks like Monsanto may be the one left without a big partner. Indeed,  its shares dropped as much as 2.7 percent on the news that Syngenta was in ChemChina's grasp.

--Duncan Mavin contributed to this article.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Syngenta got close to 30 percent of its revenue from North America as of June 30. 

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net