Spotlight Falls on Syngenta Profit as Monsanto Courts Investors

July 10, 2015 08:15 AM
 
Spotlight Falls on Syngenta Profit as Monsanto Courts Investors

Syngenta AG investors who were courted by Monsanto Co. Chief Executive Officer Hugh Grant across Europe last week will next shift focus to their company’s earnings report as they weigh the merits of a $45 billion bid by the U.S. rival.

A strong set of numbers would help buttress Syngenta’s dismissal of the deal, which it has called simplistic and doomed to fail with regulators, while a weaker turnout could provide Monsanto with fresh ammunition for its lobbying. Syngenta reports numbers for the first half on July 23, and Monsanto will probably refrain from making another move until after the earnings, said people familiar with the matter, who asked not to be identified as considerations are private.

“Monsanto has been on a big charm offensive, in the U.S., Europe and even places like Rotterdam,” said Patrick Rafaisz, an analyst at Vontobel, who is still reviewing his estimates for the Swiss fertilizer company. “If Syngenta’s results are poor, that would certainly underpin Monsanto’s case.”

A Syngenta spokesman declined to discuss earnings before they are due, while Monsanto’s representatives declined to comment on the next steps.

The overtures of Grant have so far failed to convince his counterpart at Syngenta, Mike Mack, to engage in talks and open Syngenta’s books as a prelude to a possible sweetened offer. Mack in May rejected the 449 Swiss franc-a-share offer, saying that the bid is too low as the company is set to benefit from new products and a strong pipeline of innovative crop protection offerings.

Closed Books

Before Monsanto’s approach became public at the end of April, Syngenta had fallen about 5 percent this year, in line with Monsanto’s performance. Still, the U.S. company has given investors more steady annual returns, gaining in each of the last four years, while Syngenta has declined both in 2014 and the prior year.

 

Rafaisz predicts Syngenta’s results will likely suffer from a challenging market, similar to other seeds and crop-chemical makers. With crop chemicals, a dry growing season in Europe has been good for insecticide sales, but bad for fungicides more needed in damper conditions.

Even if Syngenta delivers a strong set of numbers, Monsanto will look to highlight the Swiss company’s under-performance over recent years when the team meets investors in Europe, two people said. With the report not due for another two weeks, Grant may have enough time to return to Europe beforehand to keep the momentum going, another person said.

Asset Disposals

Grant said this month that he would need more information about Syngenta’s company before making a higher bid. The executive also said he doesn’t regard a hostile offer as a viable option, though he has pointed out that a big enough pool of disgruntled investors could call an extraordinary shareholders’ meeting to try and replace board members.

 

Syngenta Chairman Michel Demare said last month that his company would entertain what it called a “serious offer.” Refusal to open its books complicates Monsanto’s takeover strategy because the lack of due diligence makes it harder to find a buyer for assets that would need to be sold to meet expected antitrust hurdles.

A deal would turn Monsanto, a U.S. maker of genetically modified seeds and weedkillers, into the largest player in both seeds and crop chemicals. Monsanto, which timed its approach with a lull in Syngenta’s share price performance amid currency moves and lower crop prices, has pledged to sell Syngenta’s seed and genetically engineered traits as well as any overlapping chemicals to win regulatory approval.

“While friendly is becoming less likely day after day and hostile is as good as off the table, Monsanto continues to pursue this deal with remarkable passion,” Rafaisz said. “It is probably going to take longer than previously assumed as Monsanto may have to go the ‘‘semi-hostile’’ way.”

 

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