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ChemChina pounces on Syngenta for cutting edge crop technology

Company agrees to buy Swiss crop seeds and pesticides firm Syngenta for US$43 billion in China’s biggest overseas acquisition

PUBLISHED : Wednesday, 03 February, 2016, 7:22pm
UPDATED : Wednesday, 03 February, 2016, 10:24pm

State-owned China National Chemical Corporation (ChemChina) has agreed to buy Swiss crop seeds and pesticides firm Syngenta for US$43 billion, in China’s biggest overseas acquisition to allow the nation to tap advance technology to boost food productivity to feed its increasingly affluent 1.4 billion people.

ChemChina, the nation’s largest chemical company, has obtained unanimous support from Syngenta’s board of directors for it to pay a premium of around 20 per cent for all of Syngenta’s shares, or US$465 each.

“Agriculture is a strategically important sector to China amongst others,” said David Brown, PwC’s transaction services leader in China and Hong Kong. “It is an example of Chinese firms going overseas to seek technologies, industrial processes and brands to bring back to China.”

According to a report by the United States’ Department of Agriculture, US agricultural exports to China has grown exponentially with the latter accounting for around 20 per cent of all US farm exports in 2014.

“China’s agricultural imports reflect its relative scarcity of land resources, and its most prominent imports are oilseeds, oils, and cotton - products that have high land requirements per unit of output,” the USDA said in a report.

Agricultural experts believe the purchase of Syngenta would help China in securing technology for genetically modified (GMO) seeds that are becoming increasingly vital in expanding production of major oilseeds such as soybeans, corn and cotton.

In its first directive of the year, traditionally an agricultural policy, the State Council for the first time said GMO crops should be “cautiously promoted” on the basis that public safety is ensured.

Syngenta is among a handful of globally competitive firms possessing advanced GMO technologies, a list that includes US-based Monsanto which withdrew a US$46.6 billion bid to buy Syngenta after the latter snubbed it, saying the offer was too low and citing the difficulty of getting the deal through anti-monopoly regulators.

US rivals DuPont and Dow Chemical December struck a US$130 billion agreement to merge, stoking speculation of another merger approach from Monsanto to Syngenta.

“ChemChina has moved very quickly [after Monsanto’s withdrawal], same as the way [Shandong-based] Haier has recently snapped up [US electrical goods giant] GE’s white goods business after Sweden’s Electrolux pulled its bid after it ran into trouble with US antitrust authorities,” Brown told the Post. “Chinese firms could be quite opportunistic.”

He said the ChemChina deal already amounts to two-thirds the US$67 billion total of all China outbound acquisitions made last year, which was 20 per cent higher than in 2014 and was a record high.

ChemChina’s US$43 billion bid for Syngenta, if completed, will trump offshore oil producer CNOOC’s purchase of Canada’s Nexen for US$18.2 billion in 2012, according to financial markets data provider Dealogic.

“While the uncertain and gloomy global economic outlook has seen many would-be assets acquirers become cautious and adopt a wait-and-see attitude, what this ChemChina deal tells us is that companies with a long term strategic need to grow via acquisition will do so notwithstanding the current economic climate,” said Hilary Lau, a partner at law firm Herbert Smith Freehills.

“For many Chinese companies making strategic acquisitions, the primary driver would be whether the asset fits in with the company’s long-term growth strategy, rather than merely focusing on buying the asset at a cheap price.”

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