Syngenta was the subject of breathless press coverage once again this week, with headlines about Monsanto’s takeover intentions capturing a significant portion of the coverage, and BASF’s newly revealed activities taking a close second. For those clients who are unaware of the ongoing posturing in the space, here’s a quick recap:
Monsanto has previously made multiple offers, over multiple years, to purchase Syngenta. These offers have carried varying valuations for Syngenta, with the most recent and seemingly serious proposal valuing Syngenta at $45 billion. Syngenta CEO Michael Mack has spoken up, calling the offers to date an undervaluation of the company, and that the anti-trust implications would be significant; additionally, Syngenta has posted promising growth figures recently, making it a poor time to consider offers. Meanwhile, Monsanto executives have been working in the background, claiming to have verbal support from various Syngenta shareholders. Very recently, BASF announced its intentions to block Monsanto’s efforts, stating that they had raised bridge funding for a potential takeover. Rather than take an active role, however, BASF intends to remain reactive and claims it will only advance its efforts in the event that Monsanto brings a formal proposal forward.
In light of these battling titans, Lux asks the question: What would the impact(s) on the agribusiness industry be if either titan is successful?
If Monsanto is successful in convincing Syngenta to accept its overtures, it will retain Syngenta’s chemicals businesses and divest the company’s seed businesses. Monsanto believes this will assuage concerns of anti-trust regulators, though it’s possible Monsanto will have to divest essentially all of its seed businesses and become a pure agrichemicals company to truly satisfy those demands. BASF will number among the would-be buyers for a portion of the seeds side. Based on comments in the press, Monsanto is likely to treat the transaction as a means to access Syngenta’s existing facilities and customer base, rather than its R&D pipeline. Current Syngenta R&D efforts may be shuttered in favor of ongoing Monsanto efforts.
Monsanto is likely to move its headquarters to Basel where Syngenta is already headquartered, thereby taking advantage of the more attractive corporate tax situation in Switzerland compared to the U.S., saving billions of dollars that it may well use to sweeten the deal for current Syngenta shareholders. Current dealers of Syngenta seeds and chemicals will lose out, likely to be forced to shift to Monsanto-branded products. Growers currently using Syngenta seeds may switch to other agrichemical providers rather than purchasing Monsanto products, a potential boon for the eventual purchaser of Syngenta’s current seeds business. Monsanto’s precision agriculture offerings will likely become more accessible to European growers (and will be marketed to them more aggressively), leading to an increased cost of production and increased yield for corn, soy, and wheat in Europe. Within five to eight years, European row crop farm incomes will be much more volatile. There will be little noticeable change for U.S. growers beyond the disappearance of the Syngenta brand from available options, and potential marketing pressure to switch to Monsanto-branded products.
BASF has said it will only make a formal offer as a defensive move in the event Monsanto follows through with a formal offer of its own. If BASF succeeds, it will be because it brought a more attractive offer to the table than Monsanto could. Anti-trust concerns would dominate the initial joining between these two as well, likely prompting sell-offs. As BASF has been much less vocal in the press about its intentions, it is harder to predict its strategy. Lux would expect BASF to focus on chemistry over seeds as well, perhaps making Syngenta’s seed business available for purchase. The potential tax implications are not so impressive in this case, and it is unlikely BASF would move its headquarters. The combined company would likely move quickly to dominate the European market, potentially at the expense of market share in the U.S. That could end up being a boon for Monsanto, which would likely intensify its focus on gaining U.S. market share. The long-term result of a BASF success would likely be increased regionality among the major agribusinesses.
In any event, if either attempt is successful, the result will be a even smaller group of leading companies in an already well-consolidated industry. Rather than the “Big Six” of agriculture to date, the new group will be the “Huge One and Big Four” going forward. A smaller number of major players can often stifle innovation in an industry, as it means fewer potential partners and licensees for startups trying to innovate. Either overtaking company should double down on open innovation to ensure that the long-term impacts of its actions don’t include a drought of novel ideas for agriculture.