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Monsanto's $2bn bet attacks Syngenta in a sensitive spot

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Monsanto looks to be trying to turn the screw on Syngenta for now rather than come out with a knock-out blow.

The US seed giant's latest offer to win an agreement from Syngenta falls far short of the hefty sweetener to the existing $45bn bid price that some investors had been talking about.

Instead, Monsanto has offered Swiss-based Syngenta a $2bn break fee if antitrust regulators hold up a deal for more than 18 months.

But that keeps Monsanto's bid train rolling, and aims a punch too at a vulnerable spot for Syngenta.

Potential hurdle

The Swiss group is right to raise antitrust concerns as a potential hurdle to a deal.

Combined as they are, the two groups would have outsize shares in many markets, such as North American seeds.

Slimming the company to pass through regulatory hoops would require drawing up quite a list of potential disposals - and finding buyers for them, at a decent price if deal benefits are not to be eroded.

That would not be an easy task.

High-profile bet

However, in offering the break fee, Monsanto hasn't just handed Syngenta some insurance if the deal goes wrong.

It has also staked a high-profile wager in its own regulatory staff, which believe the deal is possible, against Syngenta equivalents, which have significant concerns.

The bet on those terms would appear pretty safe.

Monsanto has made plenty of mistakes with regulators in the past. Europe's resistance to genetically modified crops is in part a result of the group's hapless and naive promotion of the technology in the 1990s.

But on current standings, Monsanto's regulatory teams, termed by Credit Suisse as the "best in the industry", look more than a match for Syngenta equivalents marred by the furore over the group's MIR 162 corn seed, marketed as Viptera.

China last season used the fact it had not approved MIR 162 as a reason to reject a series of import cargos of US corn, causing significant losses to merchants such as Archers Daniels Midland and Cargill, and sparking a series of lawsuits from traders and producers too.

'Reputational risk'

Sure, Monsanto, a favourite target for environmental campaigners, comes with plenty of baggage of its own.

Syngenta has revealed "significant concerns regarding the reputational risk that a combination with Monsanto would bring to Syngenta".

However, in issuing a break fee it has dragged the debate on to an area in which it feels more comfortable.

And for $2bn, which may never be paid, that is a much cheaper bargaining chip than the 10% bid sweetener investors had been talking about, and which the group may be keeping up its sleeve.

By Mike Verdin

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