Syngenta Slumps on Concern of Protracted ChemChina EU Reviewby
Failure to make concessions raises risk of longer EU probe
EU has Oct. 28 deadline to approve or open in-depth inquiry
Syngenta AG shares tumbled on concern that China National Chemical Corp.’s $43 billion takeover of the Swiss herbicide and pesticide maker risks regulatory delays in the European Union.
ChemChina didn’t submit so-called remedies in the EU’s early-stage review of the deal by the Oct. 21 deadline, the European Commission’s press office said by phone on Monday. Companies often decide to put off making commitments -- such as asset sales to allay competition concerns -- if they know a deal is likely to get deeper scrutiny by EU regulators.
The bloc now has until Oct. 28 to decide whether to approve the deal without any strings attached or open an extended "phase two" probe that could add at least another four months before Brussels-based regulators give their final word.
Syngenta shares were down 5.6 percent at 398.50 Swiss francs at 4:28 p.m after dropping as much as 9.1 percent in Zurich trading, the steepest decline since August 2015.
“We have overlaps, no concessions have been offered: this will go to phase two,” said Ioannis Kokkoris, a professor in law and economics at Queen Mary University of London, highlighting overlaps between Syngenta and ChemChina’s Adama unit that are "not a deal-killer."
The ChemChina transaction is one of a trio of mega-deals reshaping the global agrichemicals industry already described as “quite concentrated” by the bloc’s antitrust chief. EU watchdogs opened an in-depth probe into a Dow Chemical Co. and DuPont Co. tie-up in August. EU lawmakers and environmental campaigners have been been calling on EU Competition Commissioner Margrethe Vestager to block Bayer AG’s bid for Monsanto Co.
A longer EU investigation of the deal raises risks as ChemChina faces its own possible merger with Sinochem Group as part of an overhaul of Chinese state-owned enterprises. While the EU usually approves deals after a longer probe, it can also demand significant concessions and may, in rare cases, block a deal on concerns it will harm competition.
Syngenta spokesman Leandro Conti said that “constructive discussions with the EU are ongoing” and the company would give a further update on the progress of the ChemChina deal with its third-quarter earnings statement on Tuesday.
Asked about the timetable for the deal, he repeated a statement from July saying that such “constructive discussions” with all regulatory authorities “reinforce our confidence in closing the transaction by the end of the year.”
A ChemChina representative couldn’t immediately comment.
Market reaction is "overdone," said Philipp Gamper, analyst at Zuercher Kantonalbank in Switzerland.
"I think the deal will go through, but there may have to be adjustments in terms of the timetable," Gamper said in a phone interview. "There this no real competition issue for the companies in the EU once they have merged. ChemChina doesn’t have a strong position in Europe."
Sanford C. Bernstein & Co. analysts said that while it’s possible Monday’s news means ChemChina and Syngenta “think the deal could go through without any concessions at phase one,” it’s “more likely” an in-depth probe will be needed.
“We still think the deal has a high likelihood of closing (we assign 95 percent probability) and don’t think today’s news increases the risk of the deal falling apart; however, we continue to worry about a delay,” they wrote.
ChemChina agreed to buy Syngenta earlier this year in a deal that would transform it into the world’s largest supplier of pesticides and agrochemicals. It is the biggest foreign acquisition for a Chinese firm. ChemChina has already received approval from U.S. national security officials for the takeover.
The EU development comes as the Australian Competition and Consumer Commission announced that its scheduled decision date of Oct. 27 was delayed “at the request of the merger parties so that they can provide more information to the ACCC.” A new proposed decision date will be published “in due course,” the authority said.