16 February 2016

China to spluge on largest foreign acquisition - Syngenta

Syngenta is a Switzerland-based biotechnology firm focused on producing pesticides and genetically modified seeds that enhance crop production. It went public in 2000 and is now listed on both the SIX Swiss Exchange and New York Stock Exchange. The company is among the six largest biotechnology and agrochemical firms worldwide, known as the “Big Six”, which also includes Monsanto, Bayer, Dow Chemical, BASF and DuPont.

Earlier this month, state-owned ChemChina (formally China National Chemical Corporation) agreed to take over Syngenta, less than three months after the bidder purchased Italian tyre manufacturer Pirelli for EUR 5,684 million. The price for each Syngenta share is USD 465 (a 22 per cent premium over the target’s close on the previous day), accompanied by a USD 5 dividend to be paid before closing, which is expected to take place by the end of this year. The transaction is valued at USD 43 billion, making it the largest Chinese acquisition of a foreign company to date, according to Zephyr, the M&A database published by Bureau van Dijk.

The offer followed Monsanto’s failed attempts to take over Syngenta. The Economist reported that Syngenta was hesitant about Monsanto’s aggressive moves to promote genetically modified food, which were badly received in Europe. Additionally, the merger of two Big Six companies would also have meant the introduction of tougher regulations, according to the magazine.

In contrast, the terms of ChemChina’s offer were met with a warm reception by Syngenta’s board, who gave the deal the green light. Michel Demare, chairman of Syngenta, said: “In making this offer, ChemChina is recognising the quality and potential of Syngenta’s business. This includes industry-leading R&D and manufacturing and the quality of our people worldwide.” However, the transaction is not without hurdles.

Syngenta has facilities and offices in the US, where nearly a quarter of the company’s revenue is derived from, according to Reuters. Closing of the deal is subject to the go-ahead from the Committee on Foreign Investment in the United States (CFIUS). The inter-agency commission will determine whether the foreign investment in question is detrimental to national security and will advise the US President on whether it should be blocked or approved. Some of the issues subject to CFIUS’s review include implications of US technology and facilities falling into foreign hands. Nevertheless, Demare maintained that there is no security risk. The deal is still relatively plain sailing for ChemChina, particularly since its business only accounts for a five per cent market share, making it easier to satisfy anti-trust regulations, as reported by Bloomberg.

There is also concern in the UK, where Syngenta has a significant presence. According to the Star, Labour Member of Parliament Barry Sheerman, who called for a debate in Westminster, said: “This (deal) will eradicate the UK, with thousands of employees, from that market and put those jobs in danger.” He also added that Syngenta is a big employer in the UK and is “at the heart” of the country's economy.

China has limited agricultural land (nine per cent of the world’s arable land) for its massive population (21 per cent of the world) according to Jefferies Group, an American investment bank. This is further exacerbated by the degradation of China’s land, making it less fertile for crop production, as reported by Chinese news agency Xinhua. Owning Syngenta would give the country access to the technology it needs to enhance agricultural production. In a press conference, ChemChina chairman Ren Jianxin expressed his intention to spread Syngenta’s integrated solution among Chinese farmers that still rely on traditional farming methods. As China gets richer, it also becomes better equipped to address its food security issues. 

© Zephyr