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Monsanto concessions make 'likely' success in Syngenta bid

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Monsanto was viewed "likely" to succeed in its takeover of Swiss-based Syngenta, as the US group highlighted its willingness sell seeds and agrichemicals assets to ensure the deal, launched at $45bn, clears antitrust hurdles.

Brett Bergeman, the Monsanto chief operating officer, said the group's confidence that its takeover plans would gain regulatory clearance reflected a "commitment to divest all of Syngenta's seeds and traits assets and certain overlapping chemistry assets".

Even taking these disposals into account, a Monsanto-Syngenta tie-up would "deliver substantial synergies that create value for shareowners of both companies", Mr Bergeman said, adding that cash from these side deals would make an acquisition easier to finance.

"The proceeds from the planned divestitures would create a source of cash to allow the combined company to have a responsible capital structure post-close," he said.

'Hurdles are more challenging'

The comments - which follow considerable speculation over the extent of disposals which might be necessary to ensure a takeover wins regulatory consent, and what these might mean for the deal's appeal - failed to warm Syngenta to the Monsanto bid, which the Swiss group rejected two weeks ago.

"The Syngenta board's rejection of the Monsanto proposal was made in full knowledge of everything they have announced today," Syngenta said.

"The regulatory hurdles are more challenging than implied by the [Monsanto] announcement."

'Risks materially lowered'

However, Deutsche Bank analyst Virginie Boucher-Ferte said that Monsanto's confirmation increased further the chances of its acquisition plans succeeding.

"We already thought that the odds of the deal going through were relatively high but this new information increases the likelihood," she said.

"Anti-trust risks would be materially lowered if Monsanto were to sell the entire seeds business and some chemistry."

Furthermore, a takeover of Syngenta "would be easier to digest than initially thought given the extent of the disposals", she said.

Even assuming – as some investors have speculated - that Monsanto sweetens its bid to E500 per Syngenta share, from the initial E449 per share, and the deal is financed 50:50 in cash and shares, the combined group would end up with "acceptable" leverage.

The combined Monsanto-Syngenta group, termed by some commentators as Mongenta, would have debt equivalent to about twice earnings before interest, tax, depreciation and amortisation (ebitda), Ms Boucher-Ferte said.

Who would buy Syngenta's seed arm?

Separately, Credit Suisse also termed the deal "likely", adding that the "deal timing makes sense", coming at a time of low interest rates, making borrowing cheap, and a strong dollar, which cuts the expense to US groups of foreign purchases.

Furthermore, the bank flagged a "complete lack of faith in Syngenta's ability to execute on its own $1bn cost-cutting initiative".

Credit Suisse - commenting on talk that BASF would be the front-runner in the race to buy Syngenta's seeds business, if it was put up for sale – said that the German group had "plenty of balance sheet capacity" for such an acquisition.

However, Dow Chemical is "the most strategic suitor" for the operation.

"Acquiring Syngenta's [seeds] business would give Dow much-needed scale and better position for market share gains" besides a "greater sales presence in key regions.

Dow's seeds platform, while currently "good", has the "potential to be great", the bank said.


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