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Mergers & Acquisitions

Seed Industry Shake-up

 4 min read / 

Hugh Grant, Monsanto CEO has been eyeing Syngenta since 2011. Monsanto, the American agrochemical giant, has yet again failed to get a hold of Swiss rival Syngenta, based in Basel. A deal for Syngenta would have allowed Monsanto to further claim its dominant market share in global agribusiness and offer a comprehensive range of seeds and chemicals to farmers around the world. But are there any ulterior motives for the rush?

Monsanto has impatiently been looking to move its global headquarters out of Missouri as part of a tax inversion strategy. Having a Basel-based Monsanto could result in millions in tax savings.Slide1

Compared with other European countries, Switzerland is one of the most attractive locations from a tax point of view. The Swiss have in the past allegedly negotiated special tax status for holding, so-called mixed, and principal companies. Corporate tax rates in these cases can range between 4–11%. Examples of multinationals that may be benefiting from Switzerland’s tax regime include commodities giant Glencore and oil-services company Transocean, both based in Zug, a half an hour’s drive out of Zurich.

Grant is also looking to take advantage of a potential move into Europe to rename Monsanto’s business, which is commonly identified with the use of controversial genetically modified organisms. Since the 1980s, the United States and the European Union have implemented widely divergent regulatory systems to govern the production and consumption of genetically modified agricultural crops. In the US, many products have been tested and commercially produced and marketed. In the EU however, few products have been approved and a de facto moratorium has limited the production, import, and domestic sale of most genetically modified crops. A Europe-based Monsanto could be an effective manoeuver to claim compliance with GMO-averse European regulation.

Syngenta is not impressed

The Swiss agricultural chemicals group rejected a $45bn unsolicited takeover bid from Monsanto in May 2015.

“The offer fundamentally undervalues Syngenta’s prospects and underestimates the significant execution risks, including regulatory and public scrutiny at multiple levels in many countries”

Syngenta, May 2015

Monsanto’s bid had valued Syngenta’s shares at CHF 449 and comprised 45% cash. At the time Syngenta’s share price was hovering CHF 340, which is a generous 30% premium.

No means no

Spurned Monsanto decided to raise its cash-and-stock offer to CHF 470 a share in August 2015. As well as boosting the cash component of the offer, Monsanto increased the break-up fee on the deal from $2bn to $3bn. This was still not enough for Syngenta’s board, who unanimously rejected the revised proposal. Michel Demaré, Chairman of Syngenta, said:

“We engaged with Monsanto in good faith and highlighted those key issues which required more concrete information in order to continue a dialogue.  We take note of Monsanto’s decision.  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. We are committed to accelerate shareholder value creation.”

Bayer watching closely

German drugs and chemicals group Bayer believes further consolidation in the crop chemicals and seed market is likely.

“It remains to be seen when, in what form and with which partners the consolidation will advance”

Liam Condon, Chief Executive, Bayer CropScience

Bayer, the world’s second-largest crop chemicals provider after Syngenta, declined to comment whether it would seek to play an active role in market consolidation.

Efforts to hush European regulators

Might Syngenta be rejecting Monsanto’s attempts to mask talks it may be having with Bayer? Bayer has quashed rumours of studying a potential acquisition of competitor Syngenta:

“I would say that Syngenta is not a logical acquisition target for Bayer because there is quite some overlap in the businesses”

Marijn Emmanuel Dekkers, Chief Executive Officer, Bayer

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On the other hand, a combined Syngenta and Bayer would be uniquely positioned to counter the American-dominated seed industry. Culturally, the two European companies are more similar to each other than Monsanto is to Syngenta.

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