Is Monsanto's $45 Billion Deal to Acquire Syngenta About to Unravel?

The target company draws a line in the sand, refusing further negotiation with the agribusiness giant.

Eric Volkman
Eric Volkman
Jul 30, 2015 at 4:05PM
Energy, Materials, and Utilities

Talk about an unwilling suitor. Syngenta AG (NYSE:SYT) is really digging its heels in against Monsanto's (NYSE:MON) $45 billion takeover offer. In the latest wrinkle in the months-long saga, last week the target firm's CEO, Michael Mack, emphatically ruled out any new negotiations with the potential acquirer.

That sounds like a final line in the sand, but the American company is convinced it still has a fighting chance to win Syngenta's hand in marriage, even if the would-be bride is quickly walking away.

A corporate loner
Syngenta's probably feeling emboldened these days because its most recent quarterly results were inspiring. When looked at a certain way, that is. The company's H1 figures, released last week, revealed that it booked a net profit of $1.2 billion on sales of $7.6 billion.

Thanks chiefly to weaker crop prices and thus lower spending from customers, those numbers were notably lower than in the same period last year (in which the bottom line was nearly $1.4 billion and sales came in at $8.5 billion). Yet, at least in terms of net, the company did better than expected: Analysts estimated around $1.1 billion.

The day after those results came out, Mack indicated that Syngenta is determined to live on its own and counting on its continued independence.

"The stand-alone business prospects for Syngenta and the underlying assets of the firm are terrific," he said in an interview with CNBC. "And we're getting on with business."

Meanwhile, the company's chairman, Michel Demare, was more blunt. Quoted by The Wall Street Journal, he said of Monsanto's bid that "[w]e can execute a stand-alone strategy with much less risk than the proposal here."

Imploring the investors
Now that Syngenta has built a wall between the two companies, the next move is for the respective parties to take their arguments directly to shareholders.

Both are convinced that they can sway this crowd. Syngenta is pulling out its big guns, with Mack and CFO John Ramsey currently doing an investor roadshow in the U.S. and Europe.

Top Monsanto executives, including chairman/CEO Hugh Grant, have already made their case with a number of the Swiss company's shareholders in Europe. We can assume some form of this lobbying will continue.

Meanwhile, Monsanto is hobbled by the fact that it has no access to Syngenta's books, making it much harder to determine a fair and effective price for the company.

Monsanto's $45 billion bid shakes out to 449 Swiss francs ($467) per share. At the time the offer was made, that represented a hard-to-resist premium of 43% over the share price. Now, that number is much lower -- roughly 12%, making the takeover play much less compelling.

Dogged pursuit
It's hard to win someone's hand in marriage if they're just not interested. In this instance, there isn't any easy alternative.

One might be forcing a vote on the matter, which could be triggered if more than 10% of Syngenta's stockholders decided to call a special meeting. They'd be able to set the agenda... such as a general investor poll on the Monsanto bid.

But there's no guarantee that a large enough shareholder bloc would be sufficiently tempted to make such a move. Plus, even if it was, a resulting vote could very well go the wrong way for the acquirer.

Of course, Monsanto can always up its bid. But $45 billion is already a high price tag to buy Syngenta, as it's over 20 times Monstanto's most recent annual free cash flow figure.

So it's possible the seemingly determined company could give up on this very draining pursuit. The bride is beautiful, but perhaps she just isn't worth the effort in the end.