Please ensure Javascript is enabled for purposes of website accessibility

This Is Why Syngenta Stock Leaped 11.5% in August

By Maxx Chatsko - Sep 9, 2016 at 4:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of the last remaining obstacles to its acquisition was removed last month, but one big hurdle remains.

Image source: Getty Images. 

What

Shares of Swiss agrochemical company Syngenta (NYSE: SYT) rose 11.5% last month after the Committee on Foreign Investment in the United States (or CFIUS) cleared the way for its previously agreed-to $43 billion acquisition by ChemChina.

So what

It may seem odd that a merger-acquisition between a Chinese company and a Swiss company needs to get any approval whatsoever from a panel in the United States, but Syngenta's presence in the lower 48 allows CFIUS to reject takeovers -- or erect serious obstacles to them -- in the name of national security. Investors were nervous over the decision, especially considering CFIUS had recently rejected much smaller deals involving Chinese electronics companies. As such, prior to the announcement, Syngenta was trading at a market cap of just $37 billion -- 16% lower than the acquisition price. Its market cap shot up to about $41 billion after the announcement.

SYT Chart

SYT data by YCharts.

It's worth noting that CFIUS has never raised objections to a deal in the food or agricultural sector, apparently taking the stance that America has an ample supply of food. While nothing ominous stands out about the Syngenta-ChemChina deal, investors shouldn't get comfortable with the panel's historical voting record within the industry: Natural security is in fact an integral part of national security. For current investors, however, the United States no longer poses a threat to the acquisition. 

The same cannot be said for Europe, which is still mulling over the implications of the proposed acquisition. The good news is that ChemChina remains patient, and has once again extended its deadline for the offer. It expects to close the acquisition by the end of 2016.

Now what

Investors have to be happy about recent events. Now, regulators in the European Union pose the last remaining obstacle before the acquisition can be completed -- and they may be a little more unpredictable than you think.

Luckily for investors, this is pretty simple. If you own shares, then you should take no action and patiently wait for the acquisition to close, whether that occurs as planned at the end of this year or after other potential conditions are met. But if you're an investor without a position in Syngenta, then you should stay on the sidelines. Nearly all of the upside -- which is capped at $43 billion -- is already factored into shares.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.