China made its boldest overseas takeover move when state-owned ChemChina agreed a $43 billion bid for Swiss seeds and pesticides group Syngenta on Wednesday, aiming to improve domestic food production.
The largest ever foreign purchase by a Chinese firm, announced by both companies, will accelerate a shake-up in global agrochemicals and marks a setback for U.S. firm Monsanto, which failed to buy Syngenta last year.
China, the world’s largest agricultural market, is looking to secure food supply for its population. Syngenta’s portfolio of top-tier chemicals and patent-protected seeds will represent a major upgrade of its potential output.
“Only around 10 percent of Chinese farmland is efficient. This is more than just a company buying another. This is a government attempting to address a real problem,” a source close to the deal told Reuters.
Years of intensive farming combined with overuse of chemicals has degraded land and poisoned water supplies, leaving China vulnerable to crop shortages. The deal fits into Beijing’s plans to modernize agriculture over the next five years.
“I was sent to the countryside at the age of 15, so I’m very familiar with what farmers need when they work the land. The Chinese have relied mainly on traditional ways of farming. We want to spread Syngenta’s integrated solution among smallholder farmers,” ChemChina Chairman Ren Jianxin told a media briefing.
With growth slowing at home, Chinese companies are increasingly looking abroad for deals that can boost their business and help them diversify. If completed, ChemChina’s Syngenta purchase would be more than double CNOOC’s $17.7 billion buy of Canadian energy company Nexen in 2012.
ChemChina last year bought Italian tire maker Pirelli and last month said it would buy German industrial machinery maker KraussMaffei Group for some $1 billion.
Shares in Syngenta rose on news of the deal, but at around 412 Swiss francs, were some way below the agreed offer price of $465 per share, equivalent to 480 francs, reflecting market concerns that the deal could yet stumble over regulatory hurdles and limited expectations of a counter-offer.
“Syngenta has never been valued so highly. Over the last few years the company has failed to demonstrate it can generate reasonable earnings on its own,” Patrick Huber, a fund manager at Mirabaud Asset Management told Reuters.
“We will definitely tender our shares at the offered price. I can’t imagine another bidder making a higher offer,” Huber said, adding that although U.S. regulators may not block the deal, they could delay it. Read more