The state-owned Chinese firm aims to improve domestic food production by acquiring the Swiss company, which is a major supplier to the golf industry. The deal marks the largest-ever foreign purchase by a Chinese company.
China made its boldest overseas takeover move, Reuters reported, when state-owned ChemChina extended a $43 billion bid for Swiss seeds and pesticides group Syngenta on February 3. Syngenta is also a major supplier of chemicals, fertilizers and pesticides to the golf industry.
The ChemChina-Syngenta acquisition is expected to conclude by the end of the 2015, the companies said in announcing the Chinese company’s offer.
The primary aim of the acquisition, Reuters said, is to improve domestic food production in China. But the largest- ever foreign purchase by a Chinese firm, the news service noted, will also accelerate a shake-up in global agrochemicals and marks a setback for Monsanto, which failed to buy Syngenta last year.
China, the world’s largest agricultural market, is looking to secure a food supply for its population, Reuters reported, and Syngenta’s portfolio of top-tier chemicals and patent-protected seeds will represent a major upgrade of its potential output.
“Only around 10 percent of Chinese farmland is efficient. This is more than just a company buying another. This is a government attempting to address a real problem,” a source close to the deal told Reuters.
Beijing is seeking to cut reliance on food imports amid limited farm land, a growing population and higher meat consumption, Reuters reported. China’s combined consumption of pork, beef and poultry has grown by an average 1.7 million tons a year for the past decade, placing further stress on feed grain supplies.
Years of intensive farming combined with overuse of chemicals has degraded land and poisoned water supplies, leaving China vulnerable to crop shortages, Reuters reported. The Syngenta deal fits into Beijing’s plans to modernize agriculture over the next five years.
The Chinese have relied mainly on traditional ways of farming. We want to spread Syngenta’s integrated solution among smallholder farmers,” ChemChina Chairman Ren Jianxin told a media briefing after the acquisition was announced by both companies.
Although U.S. regulators may not block the deal, they could delay it, Reuters reported. But Syngenta CEO John Ramsay, who described the ChemChina offer as “very appropriate and attractive”, said he saw no major barriers and noted that ChemChina — short for China National Chemical Corp — had secure financing in place.
“I think the overall regulatory approvals will not be very challenging,” Ramsay told Reuters, adding he expected antitrust regulators to acknowledge the limited overlap.
The Committee on Foreign Investment in the United States, whose mandate is U.S. national security, would not pose a major hurdle, Ramsay added.
Syngenta’s board would still have to consider any rival offers, Ramsay said, although there are tough financial penalty clauses for both parties if they fail to deliver on the deal.
The takeover of Syngenta by ChemChina does not amount to a Chinese nationalization of the Swiss agrichemicals giant, Michel Demaré, Chairman of Syngenta, told CNBC. Demaré said it would be business as usual for Syngenta, which employs over 28,000 in some 90 countries, with existing management continuing to run the company.
“ChemChina has a fantastic track record of having not only bought companies outside of China but also [continuing to] invest in them and develop them and keeping the culture and values in place, and I’m absolutely convinced that the same will happen here,” Demaré told CNBC.
The deal was a “fantastic transaction” for Syngenta and one that would satisfy all the company’s stakeholders, Demaré added.
“I think the main message here is that it’s not a transaction about cost synergy, it’s a transaction about growth, about innovation, about long-term vision and Syngenta will continue like it is today,” Demaré said. “Syngenta remains Syngenta, but with a long-term investor that will allow us to continue deploying our stand-alone strategy for the years to come.”
Demaré added that he did not believe the transaction would pose a problem for anti-trust regulators, despite its size, and rebuffed the notion that Syngenta was selling out of weakness.
“The industry is obviously in very challenging conditions, commodity prices are down, we’re affected a bit more because of our penetration into emerging markets, and still despite that we have managed to improve our EBITDA margin by 140 basis points,” he told CNBC. “So I think that Syngenta is actually showing a lot of resilience and good shape, and we feel that as long as markets recover and emerging markets stabilize, the long-term future is bright.
“This is an industry where the long-term drivers are still intact, people will still need to be fed [and] the population keeps increasing, so I think the future is very bright for the company.”
On the same day that the acquisition was announced, Syngenta reported full-year earnings marred by what it said were low crop prices, emerging market instability and “massive” movements in currencies. As a result, it reported a full-year net profit of $1.3 billion, that was down 17 percent on the year before, on 2015 sales that totaled $13.4 billion, down 11 percent in actual exchange rates, CNBC reported. Its EBITDA earnings fell 5 percent, to $2.7 billion.
In the earnings release, Syngenta said it had done its best to navigate various headwinds in 2015, the most notable being exchange rates that have seen multiple currencies lose value against the strengthening dollar. “Our ability to navigate our way through these headwinds was notably evident in 2015, when exchange rates reduced our full year sales by $1.8 billion – and yet the impact on EBITDA was contained at just $100 million,” the company noted.
The latest currency challenge has been the rapid devaluation of the Brazilian real, which accelerated during the summer just as the planting season was getting underway, Syngenta added.