Syngenta has rebuffed a second, virtually unchanged, takeover approach by Monsanto. The latest proposals outlined by Monsanto’s CEO Hugh Grant in a letter sent on 6 June are essentially the same as those made privately by the US company in a letter of 18 April– 449 Swiss francs/Syngenta share, valuing the company at SF417.3 billion ($44.2 billion)–but with the addition of a $2-billion breakup fee payable to Syngenta if the deal cannot be consummated for antitrust reasons within 18 months. Grant’s letter, however, holds out the prospect of a higher offer if Syngenta were to engage with Monsanto in meaningful negotiations.
Syngenta says the second letter represents the same inadequate price, same inadequate regulatory undertakings, same regulatory risks and same issues associated with dual headquarters’ moves. In particular, it says that if a transaction were to be announced and not consummated, there would be significant harm and value destruction for Syngenta and its shareholders. It described the proposed breakup fee as “wholly inadequate” and “paltry.”
The Syngenta board, in conjunction with its legal advisors, reiterated its view that the regulatory issues are likely to be more complex and much more difficult to resolve than implied by Monsanto’s proposed pre-agreed and pre-announced package of horizontal divestitures, notably of Syngenta’s seeds activities and overlapping herbicide, businesses. It says there are notable examples of proposed transactions that have been blocked by regulators due to “conglomerate concerns” and other non-horizontal issues, which the board thinks might apply in the case of a combination between Syngenta and Monsanto. In its view Monsanto continues to “gloss over” these fundamental transaction risks.
However, in his latest letter, released by Syngenta on Monday, Monsanto’s CEO, Hugh Grant, says that in three meetings over the last month, Syngenta’s outside antitrust advisers have advanced “no credible theory” that could be used to impede the proposed merger on competitive grounds, given Monsanto’s proposed divestiture of the seeds and herbicides activities. He says that the proposed $2 billion breakup fee is a sign of Monsanto’s “high confidence” in obtaining the necessary regulatory approvals. “It is clear to us, based on feedback from your shareholders and ours, that there is broad-based support for our proposals from both shareholder groups…We are convinced that the proposed transaction, combining Monsanto’s leading seeds, traits and information technology capabilities with Syngenta’s global leadership crop protection chemicals creates significant value for growers and consumers,” Grant says.
“Our proposal presents a unique and highly compelling opportunity for Syngenta shareholders to maximize value through a very significant premium to Syngenta’s unaffected share price of SF314 on April 30, 2015, the day before the initial press reports of our approach. On an aggregate basis, this premium represents SF12.5 billion of incremental value to Syngenta shareholders. Given the proposed mix of approximately 45% cash and 55% shares, your shareholders would benefit from both substantial value certainty and significant upside through an approximately 30% ownership in the combined company, which will have attractive growth prospects, a strong balance sheet, meaningful synergies, and attractive financial profile,” he says.
Grant adds that the offer of SF449/share values Syngenta at 15.8x its adjusted 2014 Ebitda of $2.9 billion and 16.3x its forecast adjusted 2015 Ebitda of $2.8 billion, based on median analyst estimates. This is significantly higher than the 10x-11.8x trailing Ebitda paid by BASF, Bayer and Platform in precedent agrochemical acquisitions. He also rejects Syngenta’s concerns about potential “vertical and conglomerate” antitrust issues, noting that “a number of firms in the agriculture industry offer an integrated portfolio of seeds and chemistry, and rather than having anticompetitive effects, that integration has enabled them to achieve significant efficiencies. Our seed and your chemistry shares are generally far below the level required to support either a vertical foreclosure or conglomerate merger theory.”
Grant says that based on public information the offer of SF449/share represents full and compelling value for Syngenta. However, if Syngenta were to provide access to confidential information on its prospects and strategic plans in due diligence “and if that information shows results or synergy potential that exceeds what we and investors have assumed, based on public information, we would consider that new information in order to refine our view on value.”
In a sign that Monsanto would take every opportunity to optimize the tax advantages of such a deal, Monsanto confirmed in its letter of 18 April that it proposed to combine the two companies under a newly formed parent company to be headquartered in the United Kingdom.
By Natasha Alperowicz