Monsanto, the US agricultural seeds and chemicals group, is pursuing a tax inversion acquisition of rival Syngenta, with the merged company to be domiciled in the UK under a new name.
Under Monsanto’s proposals, a newly formed company would be incorporated in the UK, which would reduce the company’s tax bill. Monsanto would “also propose a new name for the combined company to reflect its unique global nature,” wrote Hugh Grant, Monsanto’s chief executive to Syngenta’s board.
The Swiss company’s shareholders will hold about 30 per cent of the combined company.
The details of Monsanto’s unsolicited $45bn cash and share offer for Syngenta have been revealed after the Swiss group rejected a second approach by the US group, which offered a $2bn termination fee.
Monsanto executives are meeting investors of Syngenta and its own shareholders in Europe this week in an effort to gain support for its offer.
Monsanto did not increase its initial offer price of SFr449 a share, which it made in April. Syngenta in April told Monsanto that the number was “grossly inadequate. The Swiss group said the latest approach represented “the same inadequate price, same inadequate regulatory undertakings to close, same regulatory risks”.
Investors want an offer that at least “starts with a 5”, said one person familiar with the situation.
A combined company would become a leading global agribusiness, offering seeds and chemicals to many farmers around the world. Monsanto has said that merging the US group’s leading seeds business with Syngenta’s dominant position in agricultural chemicals would create “significant value for growers and consumers”.
Monsanto’s plans for a tax inversion deal could face political opposition in the US. In April, US Senator Dick Durbin urged Monsanto not to use a deal to move its tax domicile overseas.
The other potential hurdle to a transaction is competition regulation in the various markets both companies operate.
Monsanto has pledged to sell Syngenta’s seed business to avoid antitrust issues, but analysts say that a potential deal will still come under the scrutiny of regulators in many countries.
The US group’s advisers are also meeting Monsanto shareholders as part of a broader effort to win support for the deal.
Michel Demaré, Syngenta’s chairman, and chief executive Mike Mack said in a statement that if a transaction were to be announced and failed to complete, “there would be significant harm and value destruction for Syngenta and its shareholders”. It said that the break-up fee was “paltry” and failed to adequately address the regulatory risk.
The two companies’ lawyers had met on three separate occasions after Syngenta rejected Monsanto’s initial offer, the Swiss company said.
“These meetings have reinforced Syngenta’s assessment of the regulatory risks and Monsanto has made no attempt to seriously address these concerns. Monsanto continues to gloss over these fundamental transaction risks.”
Syngenta said that it did not think that Monsanto’s proposed divestments would resolve the antitrust issues. Some industry analysts have noted that the merged company accounting for a larger “share of wallet” for the farmer could come under scrutiny from some regulators.
A potential deal would be reviewed by antitrust regulators in about 10 countries, including China, Russia and India, according to people familiar with the situation.
The Swiss group said: “There are notable examples of proposed transactions that have been blocked by regulators due to ‘conglomerate concerns’ and other non-horizontal issues”.
However, in its letter to Syngenta’s board outlining the company’s bid last week, Monsanto rejected concerns about “vertical” and “conglomerate” regulatory issues. “There is very little precedent for deals to be blocked on such theories and we see no credible basis that would support such a result in our transaction,” wrote Hugh Grant, chief executive of Monsanto.
Transactions with high regulatory risk have tended to have sizeable break-up fees. Oil services group Halliburton agreed to a 10 per cent fee over its $34.6bn deal with Baker Hughes, while Google’s purchase of Motorola Mobility included a 20 per cent fee.