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ChemChina sets $1.5bn limit for US curbs on Syngenta deal

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ChemChina can walk away its $44bn Syngenta bid without penalty if officials in the US, where the deal has raised some security concerns, impose restrictions worth $1.5bn or more, details of the deal reveal.

ChemChina will in most circumstances in which it ditches its Syngenta bid - including if Chinese regulators block the deal - need to pay the Swiss group, the world's top agrichemicals group, a break fee of $3bn.

However, the state-owned Chinese chemicals group has secured consent to scrap the deal without a charge if antitrust officials in other countries impose conditions which would cut sales by $2.68bn, equivalent to 12.5% of Syngenta's revenues last year.

And in a separate clause covering Washington's Committee on Foreign Investment in the US (CFIUS), the deal papers reveal a lower ceiling, of $1.54bn, for the loss, in sales terms, to conditions that the watchdog can impose before ChemChina has the right to walk away fee free.

ChemChina and Syngenta have agreed voluntarily to put their deal before the committee to forestall a possible challenge to the takeover from the US ā€“ a key agricultural market, and major consumer of Syngenta products.

'Extremely concerned'

The prospect of the world's top agrichemicals group, and a major seed producer, falling into Chinese hands has caused some concerns in the US, notably from Tom Vilsack, the US agriculture secretary, who has said he has a "watchful eye" on the deal.

"Iā€¦ continue to be extremely concerned about the way in which biotechnology and innovation is being treated and impeded by a system in China that is often times not based on science and appears to be more based on politics," he said.

"America must have the ability to have its innovation get in to a marketplace after appropriate study and review without unnecessary and unreasonable barriers as a result of politics," he said.

"It needs to be science based, and it needs to be rules based."

GM furore

China - like some other jurisdictions, such as the European Union - has been somewhat reticent in its adoption of genetically modified crops, a factor which has caused large trade ructions.

Two years ago, China rejected a series of cargos of US corn - and of distillers' grains, a corn-derived feed ingredient ā€“ over contamination with a genetically modified variety not approved by Beijing.

The variety was a Syngenta type, MIR 162, which has since been approved by Chinese officials.

In fact, US agriculture officials are not represented on CFIUS, which never yet blocked a deal on food security grounds.

However, the ChemChina-Syngenta proposal comes at a time of growing political concerns over Chinese foreign investment.

Three weeks ago, a Chinese state-controlled technology group Tsinghua Holdings dropped a $3.8bn plan to become the largest shareholder in data storage group Western Digital, after the CFIUS flagged the deal for further review.

Break fee reduction

Tuesday's takeover document also reveals that ChemChina agreed in talks with Swiss takeover officials to lower to $848m, from $1.5bn, the break fee that Syngenta must pay if it ditches the deal for reasons such as accepting a rival bid.

The reduced break fee is equivalent to about SFr9.20 per Syngenta share.

And the papers reveal the mechanism by which ChemChina would stick to a promise to keep Syngenta's headquarters in Basel, with a move requiring the agreement of at least two independent directors.

ChemChina would guarantee four independent directors on the Syngenta board for five years, or until the Swiss group is relisted.

Syngenta shares stood 0.4% higher at SFr407.70 in lunchtime deals.

By Mike Verdin

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