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ChemChina ready for concessions to clinch delayed Syngenta deal

October 26, 2016
Chemical Value Chain

State-owned Chinese chemicals group ChemChina is ready to offer more concessions to win European Union antitrust approval for its $43 billion bid for Swiss pesticide and seed group Syngenta, a source with direct knowledge of the process said.

Clinching China’s biggest-ever foreign acquisition is taking longer than planned amid a flurry of deals in the agriculture sector that Syngenta, the world’s biggest pesticides maker, said on Tuesday had swamped competition watchdogs.

Syngenta expects the transaction to close around the end of March 2017, rather than this year as first planned, but insisted it would go ahead despite increased scrutiny by watchdogs gauging the impact of big deals on farmers and consumers.

Syngenta’s deal with ChemChina is one of two under EU scrutiny, while another mega deal involving Bayer and Monsanto is expected to land on the regulator’s desk in coming months.

Bayer and Monsanto have not formally requested EU approval but the European Commission has to consider this deal as well when assessing the ChemChina and Syngenta linkup, and another deal involving DuPont and Dow Chemical, to take into account the changing landscape, said an EU official.

Syngenta stock plunged more than 9 percent on Monday after a European Commission spokesman said the companies had not offered concessions to get the deal through, raising concerns about the likelihood of a longer, full investigation.

ChemChina submitted a proposal to the Commission in September, including a plan to divest some $20 million worth of assets from its agrichemical subsidiary Adama Agricultural Solutions, the Beijing-based source told Reuters.

But the Commission raised “a more detailed menu of possible remedies” last week, said the source, who declined to be identified because he was not authorized to speak to the media.

ChemChina is ready to cooperate fully with the Commission and come up with a satisfactory solution, the source added.

Another person close to the deal said there is very little overlap in technology and products between ChemChina and Syngenta and therefore total concessions on offer will remain low, adding that targeted divestments are in the ‘low double-digit million’ dollars area.

The Monsanto takeover of Bayer had changed the shape of the agrichemicals sector and the EU Commission would therefore take more time to look into the ChemChina-Syngenta deal, the person said, adding a couple of months to the deal timeline but unlikely derailing the transaction.

A ChemChina spokesman was not immediately available.

The Commission sometimes opens a full investigation to get a better understanding of complex takeovers, whereby some are eventually cleared with no or minor concessions, though this is probably not the case for ChemChina because of the wave of consolidation moves and the diverse interests involved.

REGULATORY REVIEW

Regulatory scrutiny over the ChemChina-Syngenta deal comes as global agricultural chemicals makers bulk up to better compete with each other.

Dow Chemical and DuPont plan a $130 billion merger, while Bayer aims to buy Monsanto for $66 billion.

Syngenta Chief Executive Erik Fyrwald told Reuters he expected the EU anti-trust watchdog to take its regulatory review of the ChemChina deal to a second phase once the Oct. 28 deadline for fast-track approval passes.

“I think it is likely and we are expecting it, but it is not certain,” Fyrwald said. “The process was going along and then on Sept. 14 … the Bayer and Monsanto deal was announced, since then in both the U.S. and the EU there has been a very large escalation in data requests and questions.”

The Commission declined comment.

Fyrwald dismissed suggestions that the deal could be complicated by a possible merger of ChemChina and Sinochem.

“We talk to ChemChina regularly on a range of issues … and they have repeatedly assured us that they are not in any discussions about merging with Sinochem,” he said.

Fyrwald declined to comment on the regulatory impact of the other two big deals in the pipeline. “But I can tell you that the regulators are taking a very close look at everything.”

Syngenta reported third-quarter sales of $2.5 billion, down 3 percent year-on-year at constant exchange rates. The average forecast from analysts polled by Reuters was for sales to ease 0.5 percent.

Syngenta stock rose 1.8 percent to 404.70 Swiss francs by 0530 ET, still well below the ChemChina offer price of $465 in cash per share plus a 5 Swiss franc special dividend, worth a total of around 467 francs.

Liberum analysts, who rate Syngenta “buy”, valued Syngenta at 357 francs per share should the deal not go through. ChemChina’s offer also includes a break fee of $3 billion, or 32 francs per share, for an overall fair value of 389 francs, they wrote in a note.

By Chen Aizhu and Michael Shields

Source: Reuters

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