Coverage: Syngenta agrees to $43 billion takeover bid from ChemChina

After many months of planning, it appears China National Chemical Corp.’s efforts paid off after Swiss chemical and seed maker Sygenta’s board of directors unanimously approved a $43 billion takeover offer from the state-owned Chinese corporation.

Chad Bray and Amie Tsang of The New York Times had the takeover news:

Six months ago, Syngenta said no to a $47 billion takeover attempt from Monsanto, arguing it was too risky.

But times have changed. Commodities prices have slumped, decreasing the chances of a big payday for Syngenta, one of the world’s biggest manufacturers of agricultural chemicals and seeds. China is on the hunt for strategic resource deals to provide for the long-term security of its huge population.

So when when the state-owned China National Chemical Corporation offered to buy Syngenta just $43 billion — but leave Syngenta’s Swiss headquarters and management in place — the answer was an enthusiastic yes.

The transaction, announced Wednesday, would be the largest acquisition of a foreign company by a Chinese business and the latest in a string of deals by the company, known as ChemChina. It also would be the biggest cross-border deal involving an Asia-Pacific company, according to data from Dealogic.

Under the terms of the deal, ChemChina would pay $465 a share, plus a special dividend of five Swiss francs, or about $4.90, upon closing. That would be the equivalent of 480 francs a share, representing a 22 percent premium to Syngenta’s closing price on Tuesday.

Holly Ellyatt and Julia Chatterley of CNBC laid out Syngenta’s most recent earnings, showcasing the company’s recent slump:

On Wednesday, Syngenta reported full year earnings marred by what it said were low crop prices, emerging market instability and “massive” movements in currencies. It reported a full-year net profit of $1.3 billion, down 17 percent on the year before.

It said 2015 sales totaled $13.4 billion, down 11 percent in actual exchange rates due to U.S. dollar strength from the previous year. In constant currency terms, sales were up 1 percent.

Its earnings before interest, tax,depreciation and amortization (EBITDA) fell 5 percent to $2.7 billion, down from $2.93 billion in the previous year.

Demaré rebuffed the notion that seed-maker Syngenta was selling out of weakness.

“The industry is obviously in very challenging conditions, commodity prices are down, we’re affected a bit more because of our penetration into emerging markets, and still despite that we have managed to improve our EBITDA margin by 140 basis points,” he said.

“So I think that Syngenta is actually showing a lot of resilience and good shape and we feel that as long as markets recover and emerging markets stabilize…the long-term future is bright. This is an industry where the long-term drivers are still intact, people will still need to be fed, the population keeps increasing so I think the future is very bright for the company.”

Brian Spegele and John Revill of The Wall Street Journal explained how the deal came into fruition:

The offer, confirmed by ChemChina, comes after months of uncertainty over the future of Syngenta, which was earlier pursued by U.S. seed giant Monsanto Co.

After Monsanto’s failed, unsolicited approach to the Swiss company, ChemChina decided it would only pursue a deal with Syngenta on a friendly and agreed basis, according to the person familiar with the situation.

The management teams of ChemChina and Syngenta first met in Germany nearly a year ago, according to the person. The discussions between ChemChina and Syngenta accelerated in December. Syngenta’s board gave the go-ahead for Syngenta’s management to begin negotiating a deal with ChemChina in early January and the two sides proceeded with a rapid due-diligence process afterward, according to the person.

If completed, the purchase would mark a fresh high for Chinese overseas acquisitions. Chinese companies—with the strong support of their government—have sought to gain technology and know-how from abroad, while also opening up new markets to drive sales overseas as demand at home slows.

For Syngenta, the deal holds the prospect of new capital and greater access to the huge China market, while for ChemChina, it gives the company access to Syngenta’s advanced biotechnology for developing seeds.

Syngenta would remain based in Switzerland while the existing management team would continue to run the company, Syngenta Chairman Michel Demaré said in a statement. Mr. Demaré is set to be replaced by ChemChina chief Ren Jianxin upon the deal’s completion.

“The transaction minimizes operational disruption,” Mr. Demaré was quoted as saying. “It is focused on growth globally, specifically in China and other emerging markets.”