By: Robert Cole
China has broken the future of Syngenta, the Swiss pesticides giant, wide open. The company has rejected a $42 billion bid from the China National Chemical Corporation, Bloomberg News reported. But the world’s big agrochemical companies look ripe for consolidation. Syngenta may find itself among the first to be harvested.
Several factors could fuel mergers and acquisitions across the agrochemical industry. The main one is price: Food commodity values are falling. A bushel of wheat is trading on the Chicago Board of Trade at about 30 percent less than it was 18 months ago. Organic growth in the industry has been positive in only two of the last seven quarters, according to Bank of America Merrill Lynch. Competition from generic alternatives is hitting the likes of Syngenta, while exchange rate volatility poses further headaches.
As yet, the Swiss company isn’t playing ball. Its reported rejection of China National Chemical is in response to an offer of 449 Swiss francs a share — the same bid offered by Monsanto, Syngenta’s American rival, in August before raising it to 470 Swiss francs. Yet China National Chemical’s offer is said to be in cash, rather than 55 percent in shares, as Monsanto’s was.
Syngenta will need to explain why this isn’t attractive — if it objects on regulatory concerns, as Bloomberg has reported, it should elaborate. It used antitrust arguments to rebuff Monsanto, but it will have to detail its worries again in the different circumstances.
Syngenta shares are currently 18 percent below 449 Swiss francs. Even at the current market price, they aren’t obviously cheap: The group trades at 22 percent above its peer-group average on a forecast earnings basis and 54 percent above peers in terms of enterprise value to earnings before interest, taxes, depreciation and amortization, or Ebitda, according to Thomson Reuters Eikon data.
Syngenta, which is currently between chief executives after the departure of Mike Mack in October, does have a plan to increase its Ebitda margins. But if successful, this would push its per-share value from 370 Swiss francs to 420 Swiss francs using the company’s historic multiple of 11 times.
China National Chemical may not have to do much more than keep knocking to get Syngenta to open the door.
Originally Published: The New York Times