by Andrew Noël and Alice Baghdjian
Syngenta AG is still aiming to complete a takeover by China National Chemical Corp. by the end of the year, brushing off opposition by some U.S. lawmakers and the possibility that the deal will be blocked by regulators.
“We are still on track,” Chief Executive Officer John Ramsay said on a call with analysts today when the agrochemicals company reported a fifth straight quarterly decline in sales. Syngenta is “very much anticipating the completion of the transaction, and, therefore, all the regulatory approvals by the end of the year.”
State-owned ChemChina, as the company is known, offered more than $43 billion in cash for the Swiss pesticides maker in February, trumping rival offers made by St. Louis-based Monsanto Co.. The transaction values Syngenta at about 452 francs a share, while the stock has languished at an average of about 400 francs since the deal was announced, pointing to a perceived risk that the purchase could be delayed by regulators including the Committee on Foreign Investment in the U.S., or CFIUS.
The process for getting approval from regulators is moving according to its original timetable, Ramsay said in an interview. He declined to specify whether an application has been filed to CFIUS. The companies gave the year-end target when their agreement was announced.
The break fee payable by Syngenta in case the deal falls apart has been cut toward $800 million, from an initially-agreed $1.5 billion, he said later on the call with analysts. The breakup fee payable by ChemChina stands at about $3 billion.
“The reduction of the break-up fee has been determined by the Swiss Takeover Board in the course of their scrutiny of the transaction,” Sydne Saccone, a Syngenta spokesperson, said by email.
Syngenta’s reiteration that the deal will close at the end of 2016 “seems optimistic to us”, J. Safra Sarasin analyst Ute Haibach wrote in a note to clients. “Uncertainties persist concerning the approval from the U.S. authority CFIUS.”
Some U.S. lawmakers are wary of the combination because of its potential impact on U.S. farmers’ access to genetically modified seeds, and have called on the Treasury Department to include agriculture sector regulators as part of its review of the deal.
ChemChina’s agreed purchase of Syngenta, along with Dow Chemical Co.’s planned merger with DuPont Co., has sparked a reassessment among other agrochemical and seed suppliers of their market weaknesses.
Syngenta will put more focus on cost-cutting and plans to be halfway through a program to save as much as $1 billion by the end of 2016, Ramsay said in the interview. A fourth year of low crop prices and the impact of a stronger dollar and other currency moves has focused the company’s attention on its cost base, alongside other measures to increase profit margins, he said.
“We were ahead of the game there,” Ramsay said. “You can see competitors now rushing through their own savings programs.”
Syngenta reported its fifth straight fall in sales in part due to weaker demand for agrochemicals in Latin America. Suppliers of agrochemicals and seeds are now at the midpoint of the critical northern hemisphere’s farming season, and are waiting for indications of a pick up in some markets and improved pricing for crops such as soybeans.
Ramsay has reviewed Syngenta’s seeds businesses and may consider strategic options for any areas that can’t generate gross margins of more than 50%, he said.
Revenue fell 7% to $3.74 billion in the three months through March, the Basel, Switzerland-based company said in a statement. Analysts surveyed by Bloomberg had forecast $3.72 billion.
--With assistance from Phil Serafino.
To contact the reporters on this story:
Andrew Noël in London at [email protected];
Alice Baghdjian in Zurich at [email protected]
To contact the editors responsible for this story:
Tara Patel at [email protected]
© 2016 Bloomberg L.P