China National Chemical Corporation (ChemChina) underlined its credentials as China’s most aggressive offshore state-owned acquirer with a $43 billion bid for Syngenta that would, if successful, mark the largest-ever offshore acquisition by a Chinese company.
ChemChina said it had bid $465 per share in cash for all of the equity of the Swiss seed and pesticide maker, as well as offering a special CHF5 dividend to Syngenta’s shareholders, provided they approve the acquisition.
The offer marks an 18.5% premium to the company’s closing CHF392.3 ($385.3) share valuation on February 2 and compares well against the CHF288.50 to CHF435.20 range that the shares have traded in over the past year.
It’s a healthy valuation for a company whose sales and profits have been declining amid a global downturn in commodity valuations.
The offer, if permitted, would make ChemChina a truly global player in agricultural chemicals and pesticides. It also underlines the credentials of chairman Ren Jianxin as a major dealmaker who has fervently acted upon Beijing’s exhortations for its companies to go overseas, build market share, and gain technological expertise.
“We are delighted that our ‘friendly and cooperative’ principle has led to the agreement announced today,” Ren said in a press release. He added that he looked forward to “Michel Demare remaining as vice chairman of Syngenta and lead independent director, and...to working with [interim chief executive officer] John Ramsay and the management and employees of Syngenta.”
ChemChina’s share price in Shanghai ended up 3.48% at Rmb5.65 on Wednesday.
Active overseas
ChemChina has already been highly active in overseas markets. Last year it spent $8.98 billion to buy Italian tyre maker Pirelli, a deal that FinanceAsia named M&A of the year.
However, its bid for Syngenta is on another scale entirely. The Swiss company is a big player in the global agrochemical industry. ChemChina is a much smaller player in agrochemicals but it also has divisions in new and speciality chemicals, basic chemicals, petrol processing and refinement, tyre rubber, and chemical equipment.
For ChemChina the bid may live or die on the view taken by European and US regulators. Syngenta is a major provider of seeds and pesticides to the US market. So it’s possible that the board of the Committee on Foreign Investment in the United States, which monitors foreign investment from the perspective of national security, might yet scotch it.
The fact ChemChina is a state-owned enterprise makes the potential acquisition a particularly sensitive one.
The CFIUS board will review whether the deal compromises US food security. If it concludes that it undermines the country’s security it can impose conditions to mitigate those risks or recommend the president block it.
Europe’s regulators are likely to be more accommodating. Indeed, ChemChina found its acquisition of Pirelli to be relatively simple, helped by the fact the company promised to maintain the existing management of the company.
Similarly, ChemChina said in its press release that it is “fully supportive of Syngenta’s intactness in its operations, management and employees, including keeping its headquarters in Basel, Switzerland.”
Rival bids
In addition to regulator concerns, ChemChina has opened Syngenta up to opposing bids.
In 2015 US agricultural company Monsanto, which is a shade larger than Syngenta on a revenue basis, mounted a takeover bid for the Swiss company. But its $46 billion effort was rebuffed.
Syngenta’s share price suffered a steep drop after Monsanto called off its M&A attempt, from which it has not fully recovered.
It is possible that Monsanto could be lured back into bidding, given that ChemChina’s bid is slightly smaller than its own tilt at the company. However, worse market conditions and Syngenta’s hostility to its overtures last year could also stay a rival bid.
An alliance between Monsanto and Syngenta may not make as much sense as one between Syngenta and ChemChina. Both Monsanto and Syngenta have businesses focused upon the production of seeds and pesticides, with the former focusing more on seed production, and the latter on chemicals.
But ChemChina has no seed production at all and its agrichemicals business revenues were $3 billion in 2014, well under the almost-$12 billion recorded by Syngenta.
Strategic value
One factor that is unlikely to overly bother ChemChina is Syngenta’s unimpressive revenue and profitability of late.
Like most commodity companies, Syngenta has struggled as commodity prices have slumped and hurt revenues. It reported $2.6 billion in sales for the third quarter of 2015, a 12% drop on the same period a year earlier, although the company fell over itself in its earnings report to say that its sales would have been flat had foreign exchange rates been constant.
But China’s SOEs can often afford to spurn immediate financial performance issues, provided the longer-term strategy of the purchase makes sense. In this instance, China’s desire to ensure it can better secure high quality seeds and pesticides for itself is likely to trump shorter-term issues of return.
HSBC and China Citic Bank International are advising ChemChina on the acquisition, while Dyalco, JP Morgan, Goldman Sachs, and UBS are Syngenta’s financial advisers.
Story updated to reflect John Ramsay is Syngenta's interim chief executive officer.
