To understand what could be the largest-ever takeover by a Chinese company, look no further than the changes in the nation’s diet.
A successful bid by state-owned China National Chemical Corp., or ChemChina, to buy Syngenta AG, a Swiss producer of pesticides and engineered seeds, could help China combat weeds and insects with less labor as farm workers are increasingly turning to higher-paying city jobs, and after the amount of arable land has declined. At the same time, China’s growing middle class has increased its meat consumption, boosting feed- grain demands.
While ChemChina’s initial $42 billion bid for Syngenta was rejected, people with knowledge of the matter said Thursday, the rationale remains strong. Such a deal would also transform ChemChina into a developer of genetically modified organisms, or GMOs, vaulting it into direct competition with market leader Monsanto Co.
For more than a year, President Xi Jinping has urged his country to take the lead in developing genetically modified crops. China’s nascent seed industry, he said a speech last year, should “boldly research and innovate” in GMOs and prevent foreign companies from dominating the market. Biotech for crops was highlighted in China’s most recent draft Five-Year Plan.
"What ChemChina is really interested in is the seed research," Jonas Oxgaard, a New York-based analyst at Sanford C. Bernstein & Co., said by phone Friday. "It’s arguably the main strategic rationale for the deal."
Switzerland’s Syngenta, the world’s largest producer of pesticides, is also one of a handful of non-Chinese companies that dominate the production of GMO crops -- others include Dow Chemical Co., DuPont Co. and Bayer AG. Even before ChemChina’s interest, the GMO industry was already facing upheaval. Monsanto made an unsuccessful takeover offer for Syngenta earlier this year and says it’s still looking for acquisitions, while both Dow and DuPont have acknowledged they’re in talks to potentially sell or add to their agriculture-input businesses.
ChemChina is joining the fray so it doesn’t get shut out from any consolidation, and it’s probably negotiating with Dow about acquiring the U.S. company’s Dow AgroSciences unit, according to Oxgaard. Dow AgroSciences has developed popular seed traits and it may be had for one-third the price of Syngenta, he said. ChemChina made a bid for Dow AgroSciences when it was for sale in 2009, the South China Morning Post reported at the time.
"It’s inconceivable they would bid for Syngenta and not for Dow," Oxgaard said. A spokesman for Dow declined to comment on the speculation. No one immediately responded to phone calls and an e-mail to ChemChina seeking comment.
Despite its mammoth size -- ChemChina had 160,000 employees at the end of 2013, according to data compiled by Bloomberg -- just 12 percent of its revenues come from agriculture. Gaining seed technology would allow it to skip the expensive, years-long process of developing its own GMOs and move the company beyond the generic pesticides produced by its Israel-based unit, Adama Agricultural Solutions Ltd, which it acquired in 2011.
Syngenta has one of the broadest seeds portfolio in the industry, including 6,800 varieties of its own proprietary genetics. Seeds accounted for about a quarter of sales last year and most of its GMO research takes place at Research Triangle Park in North Carolina.
Buying Syngenta would also give ChemChina the know-how to win regulatory approvals for future technologies, London-based analysts at Deutsche Bank AG said in a note Friday. Syngenta also has global reach with sites across the U.S., Europe, South America and China.
Executives at a different China-based agriculture company were so desperate to acquire GMO technology they allegedly stole seeds from Monsanto and DuPont corn fields in 2012. Mo Hailong, director of international business for Beijing Dabeinong Technology Group Co., also known as DBN Group, faces trial Feb. 6 in the criminal trade-secrets case. Mo is among six Chinese nationals accused of stealing 250 pounds of seeds from fields in Iowa and Illinois in order to ship them to Kings Nower Seed, a unit of DBN Group. Mo has pleaded not guilty.