TheChek News Flow

Subject: ACCC clears Syngenta/ChemChina transaction

http://registers.accc.gov.au/content/index.phtml/itemId/1200074/fromItemId/751046

The ACCC considered the effects of the proposed acquisition on national markets for the supply of various crop protection products (including insecticides, herbicides and fungicides) supplied by the merger parties.

The scope of the individual product markets was determined according to how the products were used by farmers, and was considered on a case by case basis. The ACCC considered that, in general, products with the same active ingredients were likely to be close substitutes. However, in many cases, there were alternative products based on other active ingredients that could be used for the same purposes. 

This analysis was informed by many factors, including:
- the pest or disease targeted, or the range of different pests or diseases against which a product can provide protection
- the crop
- the stage in the growing season at which protection is required
- the growing conditions in which the crop protection is applied
- the application method, and
- consideration of environmental impact (including impact on beneficial insects), health and safety, and residues remaining on the crop after treatment.

The ACCC also analysed the extent to which generic products compete with patented products. Syngenta is an originator company which develops new patent chemicals, whereas ChemChina (through its subsidiary, Adama) is focused more on generic, off-patent chemicals.

The ACCC considered that the significant price premium on patented chemicals indicated that cheaper generic products based on off-patent chemicals were often not likely to be an effective substitute.

The ACCC concluded that the proposed acquisition would not substantially lessen competition in any relevant market.

The parties overlap in the supply of a wide range of crop protection products with the same active ingredients. However, all of these overlaps related to chemicals which are off patent. 

The ACCC's review paid particular attention to overlaps where Adama and Syngenta had significant shares of Australian sales. In particular, at the time of the review, Syngenta and Adama were the only suppliers of products based on active ingredients Cyprodinil and Emamectin.

The ACCC did not consider that the proposed acquisition would raise significant concerns in relation to these products, due to the continued availability of substitutes (with the same and/or different active ingredients) and/or the credible threat of new entry.

Cyprodinil: The parties are the only two suppliers of Cyprodinil-based products in Australia. Cyprodinil is a fungicide used to control botrytis fungi on grapes and other crops (such as black spot on apples and pears). In some circumstances (for e.g. wine grape growers located in areas which are cool and wet or in a wet season), Cyprodinil-based products may have few substitutes. However, Cyprodinil is off patent and the ACCC determined that there was a credible threat of new entry which would constrain the actions of the merged firm. 

Emamectin: Adama and Syngenta are the only two suppliers of Emamectin-based products in Australia. Emamectin is an insecticide which, in various mixes, is used to control various moths on crops including cabbage, apple and grapes. However, the ACCC determined that there were a number of alternative products produced by other suppliers with different active ingredients which were close substitutes.

After Hours Summary: TLRD +22%, LULU +14%, HRB +6% following earnings/guidance, VYGR +35.1% on trial update news... CMTL -11.8%, VRNT -10.6% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: TLRD +21.6%, LULU +14.3%, HRB +5.7%, COST +1%

Companies trading higher in after hours in reaction to news: VYGR +35.1% (announces 'positive' interim results from phase 1b trial of VY-AADC01 for advanced parkinson's disease), TGI +5% (Gores Group to acquire Triumph Air Repair, the APU Overhaul Operations of Triumph Aviation Services -- Asia, and Triumph Engines), NWSA +2.7% (ACCC will not oppose News Corporation's proposed acquisition of APN's Australian Regional Media Division -- ARM), GLW +1.3% (authorizes new $4 bln share repurchase program), UHS +1.2% (following late sell-off amid negative report highlighting its psychiatric facilities)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: CMTL -11.8% (also announces that its Board completed its previously announced assessment of capital needs and lowered the quarterly dividend to $0.10/share from $0.30/share), VRNT -10.6%, UNFI -5.3%, CASY -2.6%, OLLI -1.1%

Companies trading lower in after hours in reaction to news: OHRP -18.8% (announces a public offering of common stock & warrants), JCAP -5% (commences an underwritten public offering of $50 mln of shares of its common stock), CODI -3.1% (commences public offering of 5.6 mln common shares and files mixed securities shelf offering), ECC -2.1% (commences 1.15 mln share common stock offering), TSN -0.5%, (light volume; reiterates from its recent earnings call that the company's chicken and prepared foods margins have returned to their normalized ranges; denies Georgia Dock manipulation allegations)

Closing Market Summary: Stocks Climb Despite Weakness in Biotechnology

The stock market enjoyed its fourth consecutive day of gains with the S&P 500 rising 1.3% to a fresh record high. The benchmark index settled ahead of the Nasdaq Composite (+1.1%), which lagged since the start.

Equity indices started the day near their flat lines, which masked gains in just about every sector. In turn, those early gains were masked by the underperfomance of the health care space (-0.8%), which was down more than 2.0% at the start.

The initial weakness in health care developed after President-elect Donald Trump told TIME Magazine that he wants to lower drug prices. This sent the iShares Nasdaq Biotechnology ETF (IBB 266.28, -8.06) lower by 2.9%. Recall that the Clinton campaign took aim at high drug prices, which contributed to an 11.3% October dive in the biotech ETF. With today's retreat, the ETF is back near the middle of its range from October.

The opening slide in biotechnology placed the Nasdaq below its flat line, but the index recovered as biotechnology climbed off its low and the top-weighted technology sector (+1.9%) surged into third place on the sector leaderboard. High-beta chipmakers had an even better showing than the sector as the PHLX Semiconductor Index jumped 2.2%. Micron (MU 20.45, +1.39) was a standout, soaring 7.3%, after Western Digital (WDC 69.15, +5.30), who acquired Micron's competitor SanDisk, raised its guidance, citing a favorable market environment. Seagate (STX 40.27, +1.12) climbed 2.9% following Western Digital's guidance, but it is worth noting that Western Digital sells consumer solid-state drives after the acquisition of SanDisk while Seagate remains focused on the mechanical hard drive market.

Similar to technology, four of the remaining five cyclical sectors posted gains while energy (+0.7%) lagged, but still ended in the green even though crude oil fell 2.3% to $49.77/bbl. The energy component slumped into the close after the government's inventory report confirmed last night's bearish reading from the American Petroleum Institute. In addition to showing an inventory build, today's EIA report revealed large increases in gasoline and distillate inventories.

Two countercyclical sectors—telecom services (+2.4%) and real estate (+2.2%)—settled atop the leaderboard thanks to daylong demand for Treasuries, which resulted in a five-basis point downtick in the 10-yr yield (2.34%).

The U.S. Dollar Index (100.18, -0.31) shed 0.3%, returning to its Monday low. The euro gained 0.4%, climbing to 1.0764 against the greenback ahead of tomorrow's policy announcement from the European Central Bank. Judging by the action in European and U.S. equities leading up to the meeting, participants are not worried about ECB President Mario Draghi hinting at reducing asset purchases. Instead, the market is positioned for the central bank to extend or maintain its current purchase program, which is set to end early next year.

Today's participation was above average as more than a billion shares changed hands at the NYSE floor.

Economic data included JOLTS, Consumer Credit, and MBA Mortgage Index:

• The October Job Openings and Labor Turnover Survey showed that job openings decreased to 5.534 million from a revised 5.631 million (from 5.486 million) in September
• The Consumer Credit report for October showed an increase of $16.0 billion while the consensus expected growth of $18.7 billion
  • September credit growth was revised up to $21.8 billion from $19.3 billion
• The weekly MBA Mortgage Index declined 0.7% after falling 9.4% one week ago

Tomorrow's economic data will be limited to weekly initial claims (consensus 255K), which will be released at 8:30 ET.

• Russell 2000 +20.6% YTD
• Dow Jones Industrial Average +12.2% YTD
• S&P 500 +9.7% YTD
• Nasdaq Composite +7.7% YTD