Agribusiness consolidation: on the right path?

22 March 2016 Agriculture Comments (1)

The friendly acquisition of Syngenta by ChemChina is now formally offered to the shareholders at 465 US$ per ordinary share plus a special dividend of 5 Swiss Francs. As no opposition has been voiced since the deal was announced, one may think that everything will run nicely.

Amazingly, the Syngenta share has peaked at 410 Fr. (412.6 US$) and is, as of yesterday, at 397.5 Fr. (409.9 US$). Why is it remaining so low?

Of course, the deal is subject to various approvals and there are a couple of stones in the garden that must be overcome.

Property rights are guaranteed in states ruled by law and not by one single party; therefore, such transaction should not raise any question about the capitalist behind the offer. But, coming from a state-owned company from a country where central directives are given to the half-private sector, there are grounds to ask if the appropriation of one of the World finest agricultural know-how has no impact on the strategic interests of the countries where the company has intense R&D activities, such as Switzerland, the United Kingdom and the USA.

I’m baffled that no comments have been made so far, neither in the general press nor in specialized media, on the fact that ChemChina owns already one large pesticide company, Adama, the former Israeli Makhteshim-Agan. I don’t understand this silence; is it an omerta?

With 4800 employees and a global business of 3.3 bn US$ Adama is no small player; in comparison, Syngenta’s revenues are 13.4 bn US$, of which 10.2 stem from chemicals, with 28’000 employees. It is a so-called generic company with aggressive cost competition; it has strong positions in Latin America and in the strongly growing Africa market. One may think that a dual positioning of a merged entity with one pillar on innovation and another one on a comprehensive generic portfolio would make strategic sense. In the pharmaceutical industry such an approach is followed by Novartis and its Sandoz generic subsidiary. Also, some conflict of interest may arise as both companies will be managed by the same Chinese owner, the Chairman and other key executives of which are already seating at Adama’s board, including a representative of the Chinese communist party. Nevertheless, the acquirer declares that Syngenta will be run as an independent Swiss company. Since when are such declarations to be taken as an eternal truth? Competition authorities will have to investigate the deal in the light of that situation, and the employees of both companies are well advised to ask troublesome questions before receiving marching orders. Shareholders may also feel this risk, which explains the low value of their stock despite of the firm offer.

Meanwhile, the rumour mill tells us that Monsanto is eyeing Bayer’s agricultural sector. For the Yankee it is a must to come back into the chemicals part of the business it has abandoned twenty years ago; but will the Germans feel compelled to sell family silver?

If all went on, the industry would consist of four globally dominant companies, the only ones with sizeable R&D capabilities, but with little strategic originality. Will it be enough diversity to ensure that it will remain an innovation driven sector?


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1 thought on “Agribusiness consolidation: on the right path?”

  1. Something I have always felt very strongly about (and I have said it before in this space too) is the fact that over the last 2 decades the game has not been about innovation – that died with the last few acquisitions – but more about bean-counting and catering to fledgling investors, fund managers who are not looking at the field but “returns” and “synergies”. Unfortunately, even governments fall in line to bail them out of the deep ditches that these “mismanagements” have created. The end result? Nobody knows where the money went and the industry keeps on becoming generic.

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