DEAL REPORTER
Monsanto [NYSE:MON] is likely to line up a buyer for Syngenta’s [SIX:SYNN] seeds business if it succeeds in taking over the Swiss agrochemicals group, according to several sector bankers.
While unlikely to make a counterbid for the whole of Syngenta, several players may be interested if its seeds business is up for sale, they said. China National Chemical (ChemChina), German chemicals groups BASF [FRA:BAS] and Bayer AG [ETR:BAYN] as well as US chemicals firms Dow Chemical [NYSE:DOW] and E I DuPont De Nemours [NYSE:DD] were all named as potential buyers. French seeds firm Groupe Limagrain, Germany’s KWS Saat, Land O' Lakes of the US, and private equity were also suggested by one of the bankers as possible buyers.
On 8 May, Syngenta confirmed it had received a USD 45bn takeover approach, which it rejected as inadequate. Monsanto said in a statement that it believed combining the two companies would create “an integrated global leader in agriculture with comprehensive and complementary product portfolios.”
Monsanto’s plan is to buy Syngenta’s chemical business and have someone else buy the seeds business, two bankers believed. It was possible that Monsanto could join forces with the acquirer of the seeds business to launch a joint bid for Syngenta, a second banker said. But, the first and third banker said, it would be cleaner and make more sense for Monsanto to launch a bid and then carve out the seeds business.
“You usually see this (joint bid) when there’s a funding issue,” the first banker pointed out. “But in this instance, selling assets where there are overlaps is the best options to get a deal through.”
A sale of at least part of the seeds business would be required for European and US competition clearance of the deal, bankers said.
For 2014, Monsanto reported net sales of USD 15.86bn. Of this, its seeds and genomics segment contributed USD 10.74bn, or 67.7% of the total. Of the segment's total sales, 40.37% is from its corn seeds business, 13.26% from soybean seed, 4.19% from cotton seed, 5.47% from vegetable seed, and 4.45% from other seeds. The rest of its revenues came from its agricultural productivity, representing 32.26%, according to the company’s FY14 results.
Meanwhile, Syngenta attributed 20.72% of its FY14 revenue to its seeds business segment. The remaining 79.28% of its revenue was attributed to Crop Protection and Lawn and Garden.
In 2013, Monsanto had a 26% share of the global seed market, making it the number one player, according to ETC research. The second player, Dupont Pioneer, had an 18.2% market share, while number three player, Syngenta, had 9.2%.
But, in the US, some 85% of corn acreage is planted with Monsanto traits, while around 90% of soybean acres are planted with Monsanto traits. Therefore, US regulators could require the sale of Syngenta’s US seed business, which is almost all corn, said the second banker.
The seeds business could attract a large number of buyers but a rival bid for the whole of Syngenta is unlikely, bankers agreed. Dow and Dupont both have activists on their boards and their shareholders would be unlikely to back an acquisition of Syngenta, said the third and fourth bankers. For BASF, an acquisition of Syngenta would be contrary to its core strategy. The German firm isn’t looking to be a seeds player but remains a provider for seeds players.
Meanwhile, Bayer isn’t in a position to make a significant acquisition as it is tied up with its recent deal with Bio Crop Science, and is now expected to focus on its pharma operations.
ChemChina could be looking at Syngenta, but this would be a financially significant acquisition for them with very few synergies, said the third and fourth bankers, who pointed out the Chinese company has its hands full at the moment with its acquisition of Pirelli [BIT:PC].