ChemChina Offers Over $43 Billion for Syngenta

By Bloomberg News

Tue Feb 3, 2016

China National Chemical Corp. agreed to buy Swiss pesticide and seeds maker Syngenta AG for more than USD 43 billion (CHF 43.5 billion) in cash as the state-backed company extends its shopping spree with what would be the biggest acquisition by a Chinese firm.

ChemChina, as the closely-held company is known, offered USD 465 a share in cash, according to a statement on Wednesday. The offer,endorsed by Syngenta’s board, is about 20% higher than the stock’s last close.

Recently, ChemChina got USD 50 billion in financing, which can be used to pay for Syngenta,including USD 35 billion that is being or will be syndicated offshore, people familiar with the matter have said.

Syngenta shares rose 3.8% to CHF 407 (USD 402) in Zurich, remaining below the offer price amid concern the takeover could be delayed by U.S. regulators.

“Political headwinds, in particular from the U.S., could make the takeover process morelengthly than initially expected,” Ute Haibach, analyst at J. Safra Sarasin, wrote in a note. “The Committee for Foreign Investment in the U.S. will likely watch the transaction closely as China’s domestic seed market is broadly closed to U.S. companies.”

If completed, the deal would help Chairman Ren Jianxin transform ChemChina into theworld’s biggest supplier of pesticides and agrochemicals, while snatching an asset coveted by St. Louis-based Monsanto Co. It also underscores the importance China attaches to owning seed and cropcare technology that can boost agricultural output and help feed the world’s biggest population.

Syngenta had sales of USD 13.4 billion in 2015, mainly from crop protection such such as pesticides and the seeds business. Bolstering agrochemicals would help ChemChina reduce its reliance on petrochemical and petroleum products, which accounted for almost half of the CNY 256.4 billion (USD 39 billion) in revenue it had in 2014, the latest annual figures available for the company.

Syngenta Trumps Past Deals

Syngenta would trump all past deals in a country whose appetite for foreign assets is surging. ChemChina’s latest purchase follows other Chinese overseas transactions this year includingHaier Group Corp.’s USD 5.4 billion purchase ofGeneral Electric Co.’s home-appliance business to Dalian Wanda Group Co.’s deal to buy control ofLegendary Entertainment. This year’s tally is on pace to exceed 2015’s record USD 123.9 billion, according to data compiled by Bloomberg.

In 2016 alone, ChemChina, whose holdings include storied Italian tiremaker Pirelli & C. SpA, led a group that agreed to buy German machinery maker KraussMaffei Group for EUR 925 million (USD 1 billion) and it acquired 12% of Swiss commodity trader Mercuria Energy Group Ltd.

Prior to that, purchases have included Adisseo Group in France to Australia’s Qenos Holdings Pty and Norway’s Elkem AS. The company has announced more than USD 15 billion of deals in the past decade, excluding Syngenta, according to data compiled by Bloomberg.

For Syngenta,led by Ramsay and Chairman Michel Demare, the agreement caps months of discussions and wider speculation about its future. ChemChina was said to have previously offered about CHF 449 francs a share and Syngenta last year rejected a CHF 470 per share offer from Monsanto. Strategically, the Swiss company will get improved access to emerging markets at a time when the planned combination of Dow Chemical Co. and DuPont Co. threatens to create a new powerhouse in agricultural products.

High Costs

ChemChina’s debt was about 9.5 times its earnings before interest, tax, depreciation and amortization in 2014, while the average of global peers was only 2.3 in latest filings, according to data compiled by Bloomberg. It had total debt of 156.5 billion yuan as of Sept. 30, exceeding cash and cash equivalents of 29.8 billion yuan, Bloomberg-compiled data show.

Even so, the company’s leverage ratio has improved from 13 times Ebitda at the end of 2013, which Moody’s said was due in part to closure of inefficient production lines. ChemChina bought or invested in assets in Italy, France, Norway, the U.K. and Singapore in the past few years, including tiremaker Pirelli & C. SpA.

Moody’s cut China’s rating outlook to negative from stable last week, saying state-sector leverage raises risks aggravating a slowdown in economic growth as funds are diverted to service debt.CITIC Ltd., among the 38 state-owned enterprises with outlooks lowered by Moody’s, said Tuesday it will probably announce a writedown of $1.5 billion to $1.7 billion to reflect the declining value of its Sino Iron project in Australia.