[A2k] Bloomberg: Monsanto Said to Have Weighed $40 Billion Syngenta Deal

Thiru Balasubramaniam thiru at keionline.org
Wed Jun 25 07:53:36 PDT 2014


http://www.bloomberg.com/news/2014-06-23/monsanto-said-to-have-weighed-40-billion-syngenta-deal.html

Monsanto Said to Have Weighed $40 Billion Syngenta Deal

By Aaron Kirchfeld, Andrew Noel and Patrick Winters  Jun 24, 2014 2:42 PM
GMT+0200

Monsanto Co. (MON) <http://www.bloomberg.com/quote/MON:US>, the world’s
largest seed company worth $64 billion, recently explored a takeover of $34
billion Swiss rival Syngenta AG (SYNN)
<http://www.bloomberg.com/quote/SYNN:VX> in a transaction that would have
allowed the U.S. firm to move its tax location to Switzerland.

The deal, which is now defunct according to people familiar with the
matter, is another sign of how U.S. firms in many sectors are trying to
avoid corporate taxes by moving their headquarters overseas. U.S. drugmaker
Pfizer Inc. pursued U.K.- based AstraZeneca Plc, offering as much as $117
billion before abandoning the deal, while North Chicago, Illinois-based
AbbVie Inc. is chasing Dublin-based Shire Plc for $46.5 billion.

Monsanto and Syngenta held preliminary talks with advisers in the past few
months about a combination before Syngenta’s management decided against
negotiations, said the people, who asked not to be identified because the
talks were private. Company officials also spoke informally with each other
about a potential deal, two of the people said.

There were concerns about the strategic fit, antitrust issues and
relocating the company to Switzerland for tax reasons, they said. The
talks, which valued Syngenta at more than $40 billion, fizzled out in late
May, one of the people said. An additional concern was that U.S.
politicians would close the inversion loophole, thereby removing that
benefit, another person said.

“The economics of the deal appear attractive at first” as it would boost
earnings and lower taxes and costs, Sanford C. Bernstein analysts led by
Jeremy Redenius said in a note to investors today. “However, the deal faces
insurmountable strategic, antitrust, and public opinion issues in our view.”
Corn, Soybeans

Syngenta shares surged as much as 7 percent in Swiss trading today and were
up 6 percent as of 2:27 p.m. local time. Before today, the stock had
underperformed peers in the past two years and declined about 8 percent in
2014. Monsanto yesterday was almost unchanged in New York, for an advance
this year of 4.8 percent.

Combining the two companies would have created the largest player in the
world for both seeds and crop chemicals and a formidable competitor to
German rivalsBayer AG (BAYN) <http://www.bloomberg.com/quote/BAYN:GR> and BASF
SE (BAS) <http://www.bloomberg.com/quote/BAS:GR> and Dow Chemical Co. (DOW)
<http://www.bloomberg.com/quote/DOW:US> in the U.S. Syngenta is the world’s
largest maker of crop chemicals and strongest in Europe, whereas Monsanto
is the largest maker of seeds and dominates the U.S. market for genetically
modified crops like corn and soybeans.

“Investors would love it, it would create by far the biggest agricultural
technology company in the world,” said Patrick Rafaisz, an analyst at Bank
Vontobel AG, adding that it would be a surprise if they pulled off such a
transaction.
Talks Resurface

“We are not in discussions on this particular matter,” Lee Quarles, a
spokesman for Monsanto, said in an e-mail without elaborating. Paul
Barrett, a spokesman for Syngenta, said it’s “our standard practice not to
comment on market rumours, which are commonplace in the financial markets
particularly at present.”

Market speculation about further consolidation in the agrochemical market
has always surrounded the leading players in the industry, including
Bayer’s CropScience, Dow Chemical and DuPont Co. (DD)
<http://www.bloomberg.com/quote/DD:US>’s Pioneer. Informal talks have been
held on numerous occasions and Syngenta explored its strategic options
prior to the financial crisis, according to two people.
DuPont Potential

DuPont, Monsanto’s largest seed competitor, could also be seen as a
potential suitor because it already has seed license deals with Syngenta,
Liberum Capital, which raised its rating on the stock to “buy” today, said
in a note to investors.

While talks between Monsanto and Syngenta are currently on hold, there is a
chance the deal could be revived, two of the people said. Cross-border
deals, especially those facing antitrust and political resistance, are
regularly abandoned before being revived. Lafarge SA (LG)
<http://www.bloomberg.com/quote/LG:FP> and Holcim Ltd. (HOLN)
<http://www.bloomberg.com/quote/HOLN:VX> agreed in April to merge to create
the world’s largest cement company, the second time in 18 months that
executives tried to put together a transaction, people familiar with the
matter have said.

A Monsanto-Syngenta deal would’ve given a recent tax inversion deal a run
for its money. Medtronic Inc. (MDT) <http://www.bloomberg.com/quote/MDT:US>,
a Minneapolis-based medical-device maker, is the latest and largest company
to say it will renounce its American address as part of its planned $42.9
billion takeover of Dublin-based Covidien Plc. The tax-inversion strategy
may free up almost $14 billion in cash that Medtronic now holds outside of
the U.S., allowing it better use of those funds.
Savings

The deal could cut Monsanto’s tax rate by almost half to 15 percent,
generating savings of about $400 million a year, according to Bernstein
estimates. The combination could also generate synergies of as much as $600
million and these savings and tax benefits could boost cash
earnings-per-share in 2016 by as much as 16 percent, the analysts wrote.

For Syngenta, change and adaptation is part of its DNA. The company was
spun off from Novartis AG (NOVN) <http://www.bloomberg.com/quote/NOVN:VX> in
2000 in order to merge with Zeneca Agrochemicals, weakening its links to
Switzerland and opening up its shareholder base. Moreover, Chief Executive
Officer Mike Mack, an American, takes a pragmatic approach to shareholder
value, with an open view to transactions, according to one of the people.
Partnerships

As well as adding the latest technology in agrochemicals, buying Syngenta
would also allow Monsanto to remove a competitor that was putting time and
money into building a rival seed business. The Swiss company has made a
string of acquisitions, including the purchase of Sunfield Seeds, to build
out its offerings, yet it faced a dominant Monsanto in the U.S. market.

Combining the seed and chemical companies would throw up complications for
the increasing number of research and development agreements between the
players. Earlier this year, Monsanto established an alliance with Novozymes
A/S (NZYMB) <http://www.bloomberg.com/quote/NZYMB:DC> for biological
solutions, including using beneficial insects, to tackle pests and disease.
The U.S. company’s partnerships also include some with BASF.

“BASF might object to it as they have a long-term R&D collaboration with
Monsanto, and it seems like this is getting tighter,” said Bank Vontobel’s
Rafaisz.

“Antitrust would be a problem, mainly in the seeds business where the two
companies would become extremely dominant in certain areas like U.S. corn.”

To contact the reporters on this story: Aaron Kirchfeld in London at
akirchfeld at bloomberg.net; Andrew Noel in London atanoel at bloomberg.net;
Patrick Winters in Zurich atpwinters3 at bloomberg.net
<http://www.bloomberg.com/news/2014-06-23/mailtspanwinters3@bloomberg.net>

To contact the editors responsible for this story: Simon Thiel at
sthiel1 at bloomberg.net; Mohammed Hadi at mhadi1 at bloomberg.net Andrew Noel

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