The tender offer made by Monsanto Co. to its Swiss rival Syngenta AG, amounting to 45,000 million dollars, highlights the growing global importance of agricultural pesticides, despite efforts in many countries to reduce the use of chemicals in the control of weeds and harmful insects.
If accepted (although Syngenta's board rejected it in the first instance), it would be the largest merger in agro-business history, according to Dealogic, and would lead to the creation of the largest provider of seed and pest control products, from the pampas of Argentina all the way to India. The new company would have the ability to sell genetically modified soybean, corn and cotton seeds, as well as the Roundup agricultural herbicide, and provide advice based on data mining.
Monsanto, based in St. Louis, Missouri, seeks to capitalise on the drop in the value of the shares of its Swiss rival, whose revenue has suffered due to the stronger dollar and the significantly lower crop prices, which in turn has taken a toll on the growers' expense in seeds and spraying.
Syngenta, the world's largest seller of pesticides, says the deal undervalues its business and that Monsanto understates the risks that companies face to close a deal and ensure regulatory approval.
Monsanto has emphasised that its tender offers "a very attractive premium" for Syngenta shareholders and that it could be greenlighted by the authorities.
Syngenta obtained 75% of its 15,000 million dollars in sales from fungicides, herbicides and other chemicals for crop protection.
The acquisition would bring Monsanto back to the chemicals business after two decades of widely investing in biotech seeds research. About two-thirds of Monsanto's 16,000 million dollars in sales in 2014 came from seeds and the sale of plant genetic licenses to its rivals. The companies, the value of whose shares increased on Friday after the news, closed the week with a combined market value of 96,600 million dollars. In 2014, they accounted for 30% of the 57,000 million dollars in global pesticide sales, according to industry estimates and financial data of the companies, and for nearly 45% of the smallest seed market, according to BMO Capital Markets.
Monsanto's offer comes amid growing challenges for the seed industry. The company's business relies mostly on the sale of seeds whose DNA has been altered to give the corn, soybeans, and other crops attributes such as resistance to certain insects or herbicides.
Growth in this market has slowed down: last year, sales rose 4.7% compared with 8.7% in 2013 and an average of 21.3% over the previous five years, according to research firm Phillips McDougall Ltd. Biotech seeds are facing several challenges. Many countries restrict the use of genetically modified organisms because of concerns about its impact on health and the environment.
Monsanto and other companies reject these concerns. GM crops are the norm in many parts of the world. Behind the United States, Brazil and Argentina are the countries with the largest acreage devoted to this type of plantations, with 42.2 and 24.3 million hectares respectively in 2014, according to the Food and Agriculture Organization (FAO).
Some consumers are pressing for foods to include a seal indicating that they have been genetically modified; something which is already done in countries like Ecuador. Meanwhile, widespread cultivation of laboratory-created seeds designed to produce toxins to eliminate insects and withstand herbicides such as Roundup has contributed to the development of pests and weeds that can survive these products, say academics.
This has helped boost insecticide and herbicide sales to control the problem. Proponents of modified seeds and related herbicides say these help growers get higher yields and prevent losses due to insects or diseases, which in turn improves the living standards of producers, as well as safety in the food chain.
The continuing need for chemical solutions to control agricultural problems and the slow adoption of biotech seeds by regulators have raised the appeal of the pesticide industry, said William Young, manager of ChemSpeak LLC, an agricultural consultant manager based in Connecticut.
Given the saturation of GM seeds in major world grain markets and the small likelihood of China and Europe approving them soon, pesticides provide Monsanto an opportunity for expansion.
Seeking an agreement is likely to lead to the scrutiny of antitrust regulators, which may require Monsanto to dispose of overlapping business in seed corn, soybeans and vegetables.
The challenges in closing a mega-merger of this size would add to the recent difficulties of Monsanto, since an agency of the World Health Organization recently classified glyphosate, the key ingredient in the herbicide Roundup, as a chemical that could potentially cause cancer. Monsanto vigorously protested the WHO statement, citing decades of analyses demonstrating product safety. On Saturday, the president of Colombia announced he would recommend the suspension of fumigation of illicit crops with the chemical, which has been key to the country's fight against drugs.
Monsanto, Syngenta and other agricultural firms have also been dealing with reduced spending by growers after two years of bumper crops in North America that have led to low global corn and soybean prices. Monsanto has weathered the crisis better than Syngenta. The former's shares grew by 2.8% over the 12 months up until the Friday when the tender offer was announced, whereas Syngenta's shares had dropped by 2.9%.
Source: LAPRENSA.HN
