Syngenta sale of vegetable seeds business not sufficient to appease shareholders
Shareholders question rationale of vegetable seeds sale
Change of management possible catalyst for renewed Monsanto approach
Syngenta has no plans to detail strategy on R&D day
Some Syngenta [VTX: SYNN] shareholders have expressed discontent with management’s plans to sell its vegetable seeds business following the withdrawal of Monsanto’s takeover approach, it is understood.
The sale of its global seeds business and an initial USD 2bn share repurchase programme was seen as a measure to appease shareholders after Monsanto [NYSE:MON] withdrew its CHF 470 per share bid. The US group pulled its approach after the Syngenta management refused to engage following two improved proposals.
But, the sale of the seeds business is not the best deal for shareholders, according to two sector bankers and two Syngenta shareholders.
“This is a clumsy move from Syngenta management to compensate and make up for their lack of flexibility during the negotiations with Monsanto. There’s nothing for us to gain in the sale of the vegetable seeds business and the share buyback is irrelevant. We were ready for a deal,” said one shareholder.
He also described the sale of the seeds business and buyback plans as dilutive on EPS. “We are massively losing on that one,” he concluded.
A second shareholder described a sale of the seeds business as lacking any business strategy. “I don’t understand why they would do that,” this shareholder said. “The vegetable seeds business is one of the most attractive assets in their portfolio (good margin and good market value), so why would you want to get rid of it.”
Syngenta declined to comment.
The sale of the vegetable seeds business is an attempt by Syngenta management to get back in its shareholders’ good books but it is not the best deal for investors, the first sector banker said. Shareholders would have got more out of a deal with Monsanto, the second banker agreed.
Had Syngenta invited Monsanto or another party to the table, it would have led to a potential bidding war, a third banker added. There were two or three other strategic bidders, including BASF [ETR;BAS] following the situation, but they did not want to go hostile, this banker said.
All three bankers believed Monsanto was still interested in Syngenta and waiting on the sidelines. But, given opposition from the US group’s own shareholders, a renewed approach was unlikely in the near term in the absence of a major catalyst, such as a change of management at Syngenta, they said.
During its pursuit of Syngenta, Monsanto had committed to divest all of the Swiss group’s seeds business to secure regulatory clearance of the proposed merger. Syngenta had received some inbounds for the vegetable business, so some of these suitors will still want to get it, the first banker pointed out.
All the key seeds players, Agrium, Bayer [FRA: BAYN], BASF AG, Limagrain and Vilmorin [EPA:RIM] are said to have showed interest in the business which is thought to be valued at around USD 2.5bn, the bankers said.
The second shareholder had not been contacted by Syngenta’s management since Monsanto announced the withdrawal of its bid last month. The shareholder hoped the sale of the seeds business would be addressed at Syngenta’s R&D day on 16 September. But, Syngenta plans to focus solely on its R&D pipeline and showcase new and existing products it is understood.
“We don’t understand the decision from the board of Syngenta,” said the first shareholder. “With the latest developments they’ve definitely lost popularity and shareholders’ trust along the way.”
Syngenta’s share price slumped from highs of CHF 398 prior to Monsanto’s withdrawal to close at CHF 309.9 on news of the pulled approach on 26 August. The shares have since made some recovery, currently trading at CHF 343.2, giving it a market capitalisation of CHF 31.84bn.