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Syngenta feels pressure to lift shares, after Monsanto shelves bid

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Shares in Syngenta recovered some lost ground amid ideas that the pesticides giant would prioritise measures to curry favour with investors, after the collapse of a bid from Monsanto sent the stock tumbling.

The shares, which collapsed 18% in the last session on news that Monsanto had abandoned its $46bn bid for Swiss-based Syngenta, rebounded more than 5% at one point on Thursday.

The recovery came amid hopes that Syngenta might unveil an initiative such as a share buyback to support its stock, which now stands a little below the SFr332.70 level it was before the group in May unveiled an approach from Monsanto.

US-based Monsanto - which last week increased its cash-and-shares bid to SFr470 per share from an initial SFr449 per share - on Wednesday revealed that it was ditching its takeover plans, citing a lack of a constructive engagement from Syngenta".

This marked the third time since 2011 that Monsanto, the world's biggest seeds group, had attempted, and failed, to acquire Syngenta.

Syngenta said that it had "engaged with Monsanto in good faith" but said that the bid "significantly undervalued the company and was fraught with execution risk".

Buyback hopes

The sharp fall in Syngenta's share price following Monsanto's withdrawal raised hopes that the company will be forced to issue a tender for its own shares, in order to push up their price.

Bank of America Merrill Lynch said that "Syngenta management are likely to be under pressure to make the situation more palatable with shareholders".

A share buyback by Syngenta would support the price of the shares, going some way to compensate the shareholders.

Credit Suisse said that improving shareholder returns would be priority for the standalone entity.

The bank calculates that thanks to its low debt to earnings ratio, Syngenta has an estimated $3bn "headroom" to put toward price support.

Shareholder pressure

Credit Suisse noted also noted "potential for shareholder activism," with 10% of shareholders required to force an AGM, which could allow investors to demand price support if the board do not initiate it.

"If Syngenta's share price remains at current levels of 310 Swiss francs, that is 40% below Monsanto's most recent bid proposal, the pressure from Syngenta shareholders will arguably build up quickly to pursue changes that increase value," said analysts at Zuercher Kantonalbank.

"These could be announced soon," the bank added.

Credit Suisse lowered its target price for Syngenta shares, but kept it well above current levels at SFr340, maintaining a "buy" rating.

But BNP Paribas slashed its price target for Syngenta shares by 24% to SFr313, giving the group a "neutral" rating.

Thin profit margins

Analysts said that Syngenta would need to focus on improving its profit margins, if it is to thrive as a standalone entity.

"Strategically, focus returns to Syngenta's ability to deliver upon an integrated crop protection and seeds strategy, whilst also achieving operating leverage/margin improvement," Credit Suisse said.

Syngenta last month reaffirmed a 2018 target of a 24-26% margin on earnings before interest, taxes, depreciation and amortisation (ebitda) for 2018.

Syngenta has projected its current margin at a 20% this year, well behind Monsanto's 29% margin.

Syngenta shares were trading up 4.0% at 322.20 Swiss francs a share in Zurich this afternoon.


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