An Inside Look into Possible Monsanto, Syngenta Merger

July 2, 2015 01:11 PM
 
An Inside Look into Possible Monsanto, Syngenta Merger

It’s a deal that's been nine months in the works: Monsanto trying to buy Syngenta. After two failed attempts, the negotiations have gone very public. 

“These are deals better done sitting in a conference rooms somewhere in the world working out details,” says Monsanto COO Brett Begemann. “But they chose to put the letters we sent to them on their website and make it very public and that started a conversation."

Syngenta has been public about Monsanto’s offers, saying it's their way of staying transparent, but the company hasn't been as open with media, declining to comment on the acquisition to Farm Journal. Instead, Syngenta released its own video.

“The proposal significantly undervalued Syngenta’s prospects, but as well, really underestimated the huge execution risk of this transaction, as well as the substantial damage that could occur to our integrated business,” says Michel Demare’, Chairman of Syngenta’s Board of Directors.

The first proposal of $45 billion, Syngenta rejected, saying it undervalued the company. The second offer included a $2 billion break-up fee if the deal doesn't go through.

“The only difference was this break fee, which we didn't think was appropriate as well, so it was a much more fast and immediate decision,” Demare’ says.

Syngenta claims the offers have been too low, but it comes at a time when Syngenta’s Wall Street performance hasn't been impressive. In February, the company announced its fourth quarter earnings missed expectation, vowing to trim their costs by $1 billion. But Demare’ says the current economic situation is to blame.

“The proposal came at a time where the Syngenta share price was affected by two external events: the first one was the weakness of the emerging market currencies, and the second one was the lower commodity prices that we're seeing for the moment,” he says.

Monsanto isn't giving up, still strongly pursuing the deal, and now bypassing Syngenta’s board and making their case to Syngenta’s shareholders, as well as their own customers.

“I ask farmers to give us a chance, look at our behavior the last five years and measure us on what we do, not on what they hear other people say we might do,” says Begemann.

The idea of a possible buy-out isn't working for farmers either. A recent Farm Journal Pulse survey shows 74 percent of farmers see the deal is either negative or very negative, only 6 percent view it as positive. 

“I think a lot of times when these things get talked about, there's an immediate reaction of ‘oh my gosh, I’m going to lose choices and my competition will be reduced,” says Begemann. “I  believe every choice available to a farmer today will be available to a farmer in the future if this deal is successful."

Begemann says Monsanto wants Syngenta for its chemical business, not seeds and traits. 

“We've been very clear that the seeds and traits business from Syngenta would be sold and would be available to a number of companies that have expressed a lot of interest in that.”

And to appease regulators, other parts of either Syngenta or Monsanto’s business will need to be divested, as well. Begemann says no matter the product line-up, brands will stay the same. 

“Those are really important to farmers and we intend for farmers to be able to identify with the brands that Syngenta is selling today that are all quite good brands, and the brands that we sell today, those will all stay as they are,” explains Begemann.

Demare’ says while all of this sounds good on the surface, he thinks Monsanto is too focused on the U.S. business and not a truly integrated strategy.  

“After these meetings, there’s even more of a concern, because we could see that Monsanto was taking a very simplistic approach,” he says.

Monsanto thinks the transaction could take less than two years, but Syngenta views the timeline as much longer, which could hold the company back. 

“It's going to be highly disruptive for Syngenta,” says Demare’. How can we on one side continue to market our integrated offers to our farmers, while at the same time starting to dismantle this integrated strategy across the world?”

Monsanto is still trying to make it a deal Syngenta won’t want to pass up, including saying the company is open to a possible name change.

Rumors are also flying regarding Monsanto relocating it’s corporate headquarters.

“One of the suggestions that we've made on feedback they'd given us some time ago was they didn't really like the idea of being a U.S. company, nor really did we like the idea of a Swiss company, so why not pick a neutral site, and we suggested the U.K. to domicile, and that's really different than headquarter,” explains Begemann.

He says the current corporate headquarters in St. Louis will remain in the Show-Me state. Begemann says no matter how the deal turns out, he thinks it’s farmers who will benefit most.

“It's tough in agriculture right now,” acknowledges Begemann. “It's tough for farmers, and it's tough for companies when you have low commodity prices. It's just a tough space to be in, and I completely understand the farmers' sensitivity and concern to this. I just hope they give us the benefit of the doubt, and I hope we've earned that credibility over the last five or ten years and they give us a chance.” 

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