No Monsanto, No Problem for Syngenta on Path to Deal: Real M&A
2014-08-27 22:00:01.4 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Brooke Sutherland and Patrick Winters
Aug. 28 (Bloomberg) -- Syngenta AG may be primed for a
deal, with or without Monsanto Co.
Syngenta and Monsanto held preliminary talks with advisers
earlier this year about a combination that never came to
fruition, people familiar with the matter have said. Syngenta’s
willingness to have such conversations signals it’s open to a
deal, whether as an acquirer or as a target, according to
shareholder Wintergreen Advisers LLC. With shares down 9.5
percent in the last 12 months amid slowing revenue growth,
Berenberg Bank said an acquisition could help the crop chemicals
company improve its prospects.
One option for $34 billion Syngenta is a takeover of Dow
Chemical Co.’s agricultural business, said Alembic Global
Advisors and SunTrust Banks Inc. Dow Chief Executive Officer
Andrew Liveris has suggested the company is open to divesting
that unit. DuPont Co. and Basel, Switzerland-based Syngenta
could also merge and then spin off the U.S. company’s non-
agricultural businesses, said Zuercher Kantonalbank.
“The last couple of months weren’t that pleasing for
shareholders,” Martin Lehmann, co-manager of 3v Asset
Management’s 3v Invest Swiss Small & Mid Cap Fund, which owns
shares of Syngenta, said in a phone interview from Zurich.
“Management is under pressure to do something smart, and that’s
not a bad thing.”
A representative for Syngenta said the company doesn’t
comment on speculation. Representatives for Midland, Michigan-
based Dow and Wilmington, Delaware-based DuPont declined to
comment.
Multiple Partners
“There are a lot of ways to win here,” David Winters, CEO
at Wintergreen, which oversees about $2.2 billion, including
Syngenta shares, said in a phone interview. “They’ve tipped
their hand that they’re willing to do something. Who they end up
doing the dance with and mating with, we’ll see but they’re
clearly at the dance.”
Monsanto, a $61 billion U.S. seed company, explored a
takeover of Syngenta earlier this year that would have allowed
it to move its legal address overseas for tax advantages,
according to people familiar with the matter in June. The talks
fizzled amid questions about strategic fit, antitrust issues and
the relocation to Switzerland, the people said, asking not to be
identified because the talks were private.
Monsanto later announced a $10 billion stock buyback, a
move that Matt Arnold of Edward Jones & Co. says reduces the
company’s financial flexibility.
Moving On
“The fact that maybe it didn’t happen with Monsanto
doesn’t mean it couldn’t happen with someone else,” Bill
Selesky of Argus Research Co., a New York-based analyst, said by
phone. “It’s a very positive sign that they’re willing to sit
down and talk and listen and possibly hammer out a deal. I
wouldn’t rule out somewhere down the road that Dow or DuPont
could buy Syngenta.”
While both companies may find a deal appealing, DuPont
would probably be a better fit, Selesky said. Its seed business
is bigger than Dow’s and has more brand recognition, he said.
A merger of $60 billion DuPont and Syngenta would create a
balanced portfolio, split almost evenly between crop chemicals
and seeds, a novelty in an industry where most companies focus
on one or the other, Martin Schreiber, an analyst at Zuercher
Kantonalbank in Zurich, wrote in an e-mail. If the two companies
joined, DuPont could then spin off its non-agricultural
operations and become a pure-play agricultural science company,
he said.
Better Taxes
On the other hand, Dow may be a better candidate to use a
Syngenta acquisition to relocate overseas for tax advantages,
said James Sheehan, an analyst at SunTrust. With the Treasury
Department weighing ways to discourage tax-inversion
acquisitions, DuPont’s well-known brands and sales to the U.S.
military may spark greater political pushback, he said.
“DuPont is likely to take a very cautious approach toward
this issue,” Sheehan said in a phone interview from Atlanta.
“Dow has a little bit more flexibility.”
Rather than sell itself, Syngenta could go on the prowl for
acquisitions of its own, said John Klein, a London-based analyst
at Berenberg.
Shareholders are getting impatient as a corporate
realignment three years ago hasn’t yet delivered the desired
results, Klein said. Syngenta’s 2013 profit fell short of
analysts’ estimates and sales that year grew at the slowest pace
since 2009.
“If they want to kickstart growth, they should make an
acquisition,” Klein of Berenberg said by phone.
The 9.5 percent drop in Syngenta shares the last 12 months
compares with a 19 gain for Monsanto and a 16 percent rise for
DuPont. Dow has climbed more than 40 percent.
Dow’s Situation
For Dow, selling its agricultural business may be a way to
unlock value as activist investor Dan Loeb pressures the company
to improve profitability, Sheehan of SunTrust said.
The $64 billion company is already planning to divest as
much as $6 billion of low-return assets. Reuters reported
yesterday that Dow is in the process of selling two of its
speciality chemicals subsidiaries, which could get a combined $2
billion.
When asked about a possible deal for the agricultural
division in July, Dow CEO Liveris said “there are no sacred
cows.”
That unit and Syngenta share similarities that would unlock
value if they were combined, Hassan Ahmed, co-founder of Alembic
Global Advisors, said in a phone interview. “A Dow agriculture
business and Syngenta marriage could actually result in
significantly higher synergies than a Syngenta marriage with a
more seed-oriented company such as DuPont’s agriculture business
or Monsanto for that matter.”
Mark Gulley of BGC Partners Inc. estimated the unit, known
as AgroSciences, could be valued at about $12 billion in a sale.
Alternative Ideas
Syngenta may be more inclined to make smaller acquisitions,
said Patrick Rafaisz, an analyst at Bank Vontobel AG in Zurich.
“Syngenta is in acquisition mode, but targets are usually
seed companies and bolt-on in nature,” Rafaisz wrote in an e-
mail. A large deal, especially with a crop chemicals company,
may not add value for shareholders and could distract management
when the focus should be on managing costs and pressing ahead
with its existing strategy, he said.
While Ahmed of Alembic says DuPont and Dow may be more
focused on slimming down than bulking up, Winters sees the
possibility of some sort of deal in Syngenta’s future.
“They’re probably willing to buy, they’re probably willing
to sell,” he said. “Either way, that’s why we own the stock
because we feel like it’s heads we win, tails we could win
bigger.”
For Related News and Information:
Monsanto Said to Have Considered $40 Billion Syngenta Deal
NSN N7OBAK6S972Y <GO>
Syngenta Profit Misses Goal, CEO Targets $1 Billion Savings
NSN N0IKFP6S972V <GO>
Dow Chemical Beats Profit Estimates as Prices Widen Margins
NSN N95ZFM6TTDSA <GO>
Syngenta deal news: SYNN VX <Equity> TCNI MNA <GO>
Top deal stories: TOP DEAL <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Jack Kaskey in Houston.
To contact the reporters on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net;
Patrick Winters in Zurich at +41-44-224-4117 or
pwinters3@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Whitney Kisling
2014-08-27 22:00:01.4 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Brooke Sutherland and Patrick Winters
Aug. 28 (Bloomberg) -- Syngenta AG may be primed for a
deal, with or without Monsanto Co.
Syngenta and Monsanto held preliminary talks with advisers
earlier this year about a combination that never came to
fruition, people familiar with the matter have said. Syngenta’s
willingness to have such conversations signals it’s open to a
deal, whether as an acquirer or as a target, according to
shareholder Wintergreen Advisers LLC. With shares down 9.5
percent in the last 12 months amid slowing revenue growth,
Berenberg Bank said an acquisition could help the crop chemicals
company improve its prospects.
One option for $34 billion Syngenta is a takeover of Dow
Chemical Co.’s agricultural business, said Alembic Global
Advisors and SunTrust Banks Inc. Dow Chief Executive Officer
Andrew Liveris has suggested the company is open to divesting
that unit. DuPont Co. and Basel, Switzerland-based Syngenta
could also merge and then spin off the U.S. company’s non-
agricultural businesses, said Zuercher Kantonalbank.
“The last couple of months weren’t that pleasing for
shareholders,” Martin Lehmann, co-manager of 3v Asset
Management’s 3v Invest Swiss Small & Mid Cap Fund, which owns
shares of Syngenta, said in a phone interview from Zurich.
“Management is under pressure to do something smart, and that’s
not a bad thing.”
A representative for Syngenta said the company doesn’t
comment on speculation. Representatives for Midland, Michigan-
based Dow and Wilmington, Delaware-based DuPont declined to
comment.
Multiple Partners
“There are a lot of ways to win here,” David Winters, CEO
at Wintergreen, which oversees about $2.2 billion, including
Syngenta shares, said in a phone interview. “They’ve tipped
their hand that they’re willing to do something. Who they end up
doing the dance with and mating with, we’ll see but they’re
clearly at the dance.”
Monsanto, a $61 billion U.S. seed company, explored a
takeover of Syngenta earlier this year that would have allowed
it to move its legal address overseas for tax advantages,
according to people familiar with the matter in June. The talks
fizzled amid questions about strategic fit, antitrust issues and
the relocation to Switzerland, the people said, asking not to be
identified because the talks were private.
Monsanto later announced a $10 billion stock buyback, a
move that Matt Arnold of Edward Jones & Co. says reduces the
company’s financial flexibility.
Moving On
“The fact that maybe it didn’t happen with Monsanto
doesn’t mean it couldn’t happen with someone else,” Bill
Selesky of Argus Research Co., a New York-based analyst, said by
phone. “It’s a very positive sign that they’re willing to sit
down and talk and listen and possibly hammer out a deal. I
wouldn’t rule out somewhere down the road that Dow or DuPont
could buy Syngenta.”
While both companies may find a deal appealing, DuPont
would probably be a better fit, Selesky said. Its seed business
is bigger than Dow’s and has more brand recognition, he said.
A merger of $60 billion DuPont and Syngenta would create a
balanced portfolio, split almost evenly between crop chemicals
and seeds, a novelty in an industry where most companies focus
on one or the other, Martin Schreiber, an analyst at Zuercher
Kantonalbank in Zurich, wrote in an e-mail. If the two companies
joined, DuPont could then spin off its non-agricultural
operations and become a pure-play agricultural science company,
he said.
Better Taxes
On the other hand, Dow may be a better candidate to use a
Syngenta acquisition to relocate overseas for tax advantages,
said James Sheehan, an analyst at SunTrust. With the Treasury
Department weighing ways to discourage tax-inversion
acquisitions, DuPont’s well-known brands and sales to the U.S.
military may spark greater political pushback, he said.
“DuPont is likely to take a very cautious approach toward
this issue,” Sheehan said in a phone interview from Atlanta.
“Dow has a little bit more flexibility.”
Rather than sell itself, Syngenta could go on the prowl for
acquisitions of its own, said John Klein, a London-based analyst
at Berenberg.
Shareholders are getting impatient as a corporate
realignment three years ago hasn’t yet delivered the desired
results, Klein said. Syngenta’s 2013 profit fell short of
analysts’ estimates and sales that year grew at the slowest pace
since 2009.
“If they want to kickstart growth, they should make an
acquisition,” Klein of Berenberg said by phone.
The 9.5 percent drop in Syngenta shares the last 12 months
compares with a 19 gain for Monsanto and a 16 percent rise for
DuPont. Dow has climbed more than 40 percent.
Dow’s Situation
For Dow, selling its agricultural business may be a way to
unlock value as activist investor Dan Loeb pressures the company
to improve profitability, Sheehan of SunTrust said.
The $64 billion company is already planning to divest as
much as $6 billion of low-return assets. Reuters reported
yesterday that Dow is in the process of selling two of its
speciality chemicals subsidiaries, which could get a combined $2
billion.
When asked about a possible deal for the agricultural
division in July, Dow CEO Liveris said “there are no sacred
cows.”
That unit and Syngenta share similarities that would unlock
value if they were combined, Hassan Ahmed, co-founder of Alembic
Global Advisors, said in a phone interview. “A Dow agriculture
business and Syngenta marriage could actually result in
significantly higher synergies than a Syngenta marriage with a
more seed-oriented company such as DuPont’s agriculture business
or Monsanto for that matter.”
Mark Gulley of BGC Partners Inc. estimated the unit, known
as AgroSciences, could be valued at about $12 billion in a sale.
Alternative Ideas
Syngenta may be more inclined to make smaller acquisitions,
said Patrick Rafaisz, an analyst at Bank Vontobel AG in Zurich.
“Syngenta is in acquisition mode, but targets are usually
seed companies and bolt-on in nature,” Rafaisz wrote in an e-
mail. A large deal, especially with a crop chemicals company,
may not add value for shareholders and could distract management
when the focus should be on managing costs and pressing ahead
with its existing strategy, he said.
While Ahmed of Alembic says DuPont and Dow may be more
focused on slimming down than bulking up, Winters sees the
possibility of some sort of deal in Syngenta’s future.
“They’re probably willing to buy, they’re probably willing
to sell,” he said. “Either way, that’s why we own the stock
because we feel like it’s heads we win, tails we could win
bigger.”
For Related News and Information:
Monsanto Said to Have Considered $40 Billion Syngenta Deal
NSN N7OBAK6S972Y <GO>
Syngenta Profit Misses Goal, CEO Targets $1 Billion Savings
NSN N0IKFP6S972V <GO>
Dow Chemical Beats Profit Estimates as Prices Widen Margins
NSN N95ZFM6TTDSA <GO>
Syngenta deal news: SYNN VX <Equity> TCNI MNA <GO>
Top deal stories: TOP DEAL <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Jack Kaskey in Houston.
To contact the reporters on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net;
Patrick Winters in Zurich at +41-44-224-4117 or
pwinters3@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Whitney Kisling