Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Swiss-based agricultural technology company Syngenta AG (NYSE: SYT) are up over 15% today after it was revealed that the company was approached about a takeover by Monsanto (NYSE:MON).
So what: This is deja vu for Syngenta shareholders, which in June 2014 learned of a failed $40 billion bid from Monsanto. The prior deal was rejected due to concerns of antitrust laws and a lack of a strategic fit. The former concern would have to be addressed in a big way if a potential merger has any shot at being approved. After all, Monsanto is the world's largest seed and trait manufacturer, while Syngenta is the largest agricultural chemical manufacturer. A combined company would dominate the global market.
A potential merger would be good news for Syngenta shareholders, which have been underwhelmed by growth in recent years. Since 2011 the company has grown revenue 14% and operating income just 5%. Monsanto, on the other hand, is expected to double EPS from 2014 levels by the year 2019 thanks to heavy investments in novel platforms spanning software and next-generation biotech tools.
In other words, a potential merger would bail out Syngenta shareholders from stagnating growth, but it may weigh on Monsanto margins and slow its impressive growth in return for higher revenue and earnings.
Now what: The former buyout price was $40 billion, yet, even with today's surge Syngenta is valued at just $36 billion. Given the company's well-founded concerns about antitrust laws, I'm not sure how Monsanto would sweeten the deal (how much higher than $40 billion can the latter afford?) or sell enough assets to appease regulators (and at what cost to shareholders?).
Of course, it's important to note that at this point this is just a rumor, albeit one from sources that claim to have knowledge of discussions taking place behind closed doors. I wouldn't do anything differently if I were a shareholder, although this is certainly a situation to monitor going forward.