Syngenta may seek partners, JVs after product review

31 Aug 2015 | Author: | No comments yet »

Agribusiness giant Monsanto drops bid for Switzerland’s Syngenta.

Monsanto has dropped its roughly $US46 billion ($64.6bn) bid for Syngenta after the Swiss agribusiness giant rejected a sweetened offer, dashing — at least for now — chances of a union that would have reshaped the global market for seeds and pesticides.The newest offer also contains a rise in the breakup fee from $2 billion to $3 billion in the event regulators block the trade or falls apart for other reasons, the man said.

“Now Monsanto must weigh other options, such as joining with different pesticide manufacturers, to better integrate its seeds business with crop chemicals, a strategy that [CEO Hugh Grant] has said made sense regardless of the outcome of its merger proposal”, The Wall Street Journal reported. MON -0.02 % , raising the possibility that they could seek changes to Syngenta’s board to make it more amenable to a deal. “The management of Syngenta is throwing away $15 billion to $20 billion of shareholders’ money,” said Mark Yockey, portfolio manager with Milwaukee-based Artisan Partners APAM -1.65 % LP, which ranks among the top 10 Syngenta shareholders, according to Thomson Reuters data. The surprise disclosure capped four months of aggressive pursuit by US-based Monsanto, which Syngenta had consistently rebuffed even as some of its shareholders pressured the company to negotiate. A combination with Basel-based Syngenta would have made Monsanto the world’s largest producer of farming chemicals, in addition to its market-leading seed business.

Moving forward, Monsanto said it will continue focusing on opportunities within its existing core business and resume the implementation of its approved share repurchase program as soon as practical. The deal’s demise forestalls what some analysts anticipated, and some farmers feared, would be more consolidation in the global marketplace for crop seeds and chemicals, a sector dominated by six companies. “We engaged with Monsanto in good faith and highlighted those key issues which required more concrete information in order to continue a dialogue,” said Michel Demare, Syngenta’s chairman. “Our board is confident that Syngenta’s long-term prospects remain very attractive with a leading portfolio and a promising pipeline of new products and technologies.” The combination of Syngenta’s position in pesticides with Monsanto’s seeds business offered “transformative” potential, he had said, and the deal was his most ambitious expansion plan in 12 years at the helm. Syngenta confirmed that it had rejected Monsanto’s latest offer, which “significantly undervalued the company and was fraught with execution risk”.

Yockey’s estimate centers on the difference between Monsanto’s recently abandoned offer and Syngenta’s market value after its stock fell this week. Syngenta now must show it could deliver on the organic growth its executives argued was preferable to a Monsanto deal, even as low commodity prices cut farmers’ spending on equipment and supplies, Jeremy Redenius, analyst with Sanford C.

Syngenta officials did not return a request for comment on Tuesday morning about whether a sweetened deal from Monsanto would convince them to agree to discuss a transaction. The recent offer values Syngenta at about $503 per share in cash and stock, compared with the $480 the U.S. firm offered earlier this year, the sources said, asking not to be identified discussing a private situation. Bernstein, said. “American agriculture is already far too economically concentrated, leaving family farmers and ranchers at a great disadvantage in the market place,” NFU president Roger Johnson said.

While the macro ag backdrop is challenging with farm incomes falling and low grain prices, we think Monsanto is still well positioned as the strongest seed company with the best R&D pipeline in the industry. Monsanto, the largest seed company by sales, responded by abandoning the pursuit four months after it first began promoting the deal to investors, politicians and farmers.

Syngenta said Monsanto had failed to provide “sufficient clarity” on a number of concerns, including regulatory risk, the tax consequences of shifting the company’s registered headquarters from the US to Britain, and the estimated financial benefits of the proposed merger. Bernstein survey earlier this month of almost 100 current and former Syngenta investors found that about 92 percent were in favor of a negotiated deal, and would accept a 5 percent higher offer from Monsanto. Swiss-listed shares of Syngenta recovered somewhat after plunging on Wednesday, but on Friday were still about 15% below the level before Monsanto dropped its pursuit. Louis-based company’s new offer isn’t necessarily final and could change if Syngenta agrees to enter negotiations and open its books for due diligence, the person said. Additionally, the company’s management reiterated its confidence in delivering its five-year plan to increase (more than double) its ongoing FY2014 earnings per share by 2019.

Monsanto needs to reassure investors that a pesticide business that its chief executive described as “transformative” isn’t actually necessary for continued growth. Under Syngenta’s articles of incorporation, investors collectively holding 10% or more of the company’s stock could call a special meeting sooner and set the agenda. Some shareholders said Syngenta must explore other ways to ignite profit growth, such as selling portions of its agricultural seed portfolio or boosting its debt and using the proceeds to buy back shares. “The company also needs to overhaul its strategy to address issues like the constant cost saving they are doing and why they are losing market share in the U.S. and what is really happening with their R&D pipeline,” said Andrea Williams, senior fund manager at Royal London Asset Management Ltd. Williams said she had favored Syngenta entering formal deal talks with Monsanto. “There’s an investor day on research and development in September, but the company is going to have to talk about a lot more than R&D,” she added. “If they fail on their [growth] targets—and their targets are rather ambitious—it’s clear that Mr. Mack can no longer be running the company,” said Martin Lehmann, a partner with 3V Asset Management AG, a Zurich-based firm that owns Syngenta shares.

Bächtold said, Syngenta’s management should have talked more with their investors about the offer. “It’s not the management who own the company, it’s the shareholders; the management need to remember that,” he said.

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