Brooke Sutherland New York
A COMBINATION of Monsanto and Syngenta would set the stage for even more mergers and acquisitions.
Monsanto has approached Syngenta about a takeover that would create a giant in the market for seeds and crop chemicals with more than $30 billion (R361bn) in revenue.
Getting a deal approved by regulators will not be easy – and may not happen at all.
To address antitrust issues and help its case, Monsanto has planned for a deal to include a sale of parts of the combined business, a person familiar with the matter has said.
The biggest concerns may be tied to what would be an unprecedented market share in soybeans and maize seeds for the combined company.
Syngenta’s operations in those areas would appeal to a range of buyers from Dow Chemical to BASF and Bayer, said Colin Isaac of Atlantic Equities. Even private-equity firms could look.
Syngenta’s “seed businesses would be pretty easy to sell for good multiples”, Isaac, a London-based analyst, said.
DuPont could also be a buyer of any assets that were divested, said Bill Selesky, an analyst at Argus Research.
There is another possibility: At Dow, activist investor Dan Loeb once pushed for a breakup, and chief executive Andrew Liveris has suggested the company is open to divesting its agriculture unit.
Monsanto becoming a much stronger competitor could be a catalyst for the $60bn company to more seriously consider taking the step of exiting that business, which made up about 13 percent of its revenue last year, said James Sheehan of SunTrust Banks.
That segment would be prime pickings for DuPont and its Pioneer seed business, he said.
“That’s the deal that I’ve always expected to happen,” Isaac of Atlantic Equities said. “It’s attractive for Pioneer and it’s attractive for Dow in terms of focusing their portfolio on the chemicals business and raising a lot of cash.”
A $19.5bn bid by DuPont for Dow’s agricultural-sciences business could generate a 7 percent return on invested capital, according to a report on Friday by Laurence Alexander at Jefferies Group. But a DuPont takeover of this business was less likely until agricultural markets improve from current trough levels, he said.
DuPont and Dow may be interested in acquiring all of Syngenta and could not be counted out as possible counterbidders, said Selesky at Argus Research.
Dow may also have a clearer path to regulatory approval in a Syngenta takeover than Monsanto. For example, Dow has a 6 percent share of the maize seed market, compared with Monsanto’s 31 percent, according to data compiled by Bloomberg Intelligence.
Dow and DuPont may not want to engage in a bidding war with Monsanto.
Whatever the permutations, the agricultural-chemical industry was facing pressure to further consolidate amid slower growth and lower commodity prices, said Lehmann of 3v. –
Bloomberg