SYNGENTA / MONSANTO - BASF mulling Syngenta offer – sources speaking to Reuters?
UBS note – BASF for the entire Syngenta makes little sense
· We believe BASF would face very challenging antitrust issues in crop protection chemicals but – if anything -would want access to the Seeds business of Syngenta. The latter, Monsanto we think may well offer to BASF in an exclusive first right of refusal arrangement (similar to Akzo divesting the ICI National Starch business on to Henkel right at the time of the announced bid for ICI). Furthermore, BASF has not issued equity since 1865, and we believe would have to break that 'law' if they were to bid for Syngenta as a whole.
· BASF could comfortably finance the Seeds side of this equation. The value estimate for Syngenta Seeds (disposal proceeds estimated at €6-€8bn, UBSe) equates to the 2015 operating cash flow estimate of BASF, or to 0.7x EBITDA. We believe entirely feasible with cash and debt financing if it were to occur.
· Next likely move is a second offer from Monsanto that Syn can hardly ignore. We think the fact that a second bid has yet to be tabled publicly hinges on Syngenta and Monsanto likely discussing break-fees for a deal. We see meaningful risk that competition authorities may look at the combo unfavourably, despite divestment commitments. This as the combined R&D capabilities of Monsanto, Novozymes and Syngenta in Seeds, Traits, Biologics and chemistry are likely hard to replicate for any competitor. Meanwhile, the outlook for the forthcoming Latin American season has deteriorated in the wake of worsening access to credit for growers. Crop prices and emerging market currencies have also not turned in Syngenta's favour.
· Synn rated B, PT 475CHF. For the note click here https://neo.ubs.com/shared/d1GP54mGI2zlQD
Recap from last night
· German chemicals group BASF SE is considering a potential offer for Syngenta AG, its Swiss rival which has received a $45 billion takeover offer from Monsanto Co, people familiar with the matter said on Wednesday. BASF is speaking to investment bankers about the possibility of an offer for Syngenta, though it has made no decision and no bid may materialize, the people said, asking not to be identified because the deliberations are confidential. (Reuters)
· The sale of the Swiss agrochemicals group Syngenta threatens to turn into a bidding war. After the US company Monsanto and the chemical giant BASF has expressed interest: The war chest was 'well stocked'. (Handelsblatt google translated)
Synn/Mon lawyers met last week on regulatory hurdles
· Syngenta has so far spurned Monsanto's overtures citing antitrust hurdles, though lawyers representing the two companies met last week in New York to discuss whether the regulatory obstacles can be overcome, a separate source said. A BASF bid for Syngenta would also likely face significant antitrust issues. (Reuters)
BASF/Mon relationship
· BASF, the world’s largest chemicals group by sales, is also developing improved plant characteristics such as drought tolerability but relies on partners, the biggest being Monsanto, to bring finished seed products to market. (Reuters)
· The move comes as a surprise, since BASF would therefore… possibly endanger the alliance. BASF is working since 2007 with Monsanto in the development of biotechnologically modified crops together. (APA Finance Briefing)
BASF previously mentioned for seeds
· BASF is also a potential buyer of Syngenta's seed business should Monsanto agree to a deal with Syngenta and then sell its seed business to allay antitrust concerns, sources have previously told Reuters.
· BASF had already been mentioned by analysts as the most likely candidate for a purchase of Syngenta's seed division (NZZ google translated)
· BASF has so far does not have a seed business and the offer of Ludwigshafen on pesticides could be usefully supplemented by this resource. (Handelsblatt google translated)
· Syngenta comes with its seed business, whose value is estimated to be six to eight billion dollars, with a market share of eight percent. (AWP Swiss News)
MON potential price, break fee…
· The Americans would have to offer at least a unit price of 500 Swiss francs and also increase the cash portion to more than CHF 200… Supposedly Syngenta charge a fee of around ten percent of the offered purchase price in the event of breakdown in negotiations (Basler Zeitung google translated)
Further consolidation
· Bayer expects regardless of the outcome of the takeover advances from Monsanto consolidation in the crop protection and seed industry: "When, how and with which partners progressing consolidation remains to be seen", explains the head of Bayer's agricultural chemicals business, Liam Condon, in a E-mail to Reuters. (AWP Swiss News google translated)