Syngenta sees ChemChina deal closing in second quarter

Reuters — Swiss pesticides and seeds group Syngenta pushed back the expected closure of its agreed US$43 billion takeover by ChemChina to the second quarter of 2017, but said it was making progress in winning regulatory approval for the deal.

The transaction is important for China, the world’s largest agricultural market, which is looking to Syngenta’s portfolio of chemicals and patent-protected seeds to help bolster food supplies for its huge population.

“ChemChina and Syngenta have made significant progress towards achieving the necessary regulatory approvals and closing the transaction,” Syngenta said on Wednesday, as it reported slightly better than expected core earnings for 2016 that signalled the year-long takeover saga has not affected business.

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The company said it did not plan to pay a dividend on 2016 earnings. Analysts had expected a payout of 11.60 Swiss francs a share, up from 11 francs last year, but any such payout would have been offset by a deduction from the offer price anyway, according to the public tender offer.

Syngenta shares rose 1.2 per cent to 430.30 Swiss francs (C$570.04) in early trade, but are still below ChemChina’s offer of $465 per share plus a special dividend of five francs.

“We still see very high odds (90 per cent) of the deal’s successful closure,” Bernstein Research analyst Jeremy Redenius said in a note.

Potential antitrust hurdles have gripped investors’ attention as two other major tie-ups in the pesticides and seeds industry are being scrutinized by regulators across the globe: Bayer’s acquisition of Monsanto and the merger of Dow Chemical and DuPont.

Agrochemicals firms are racing to consolidate amid pressure on farm incomes and improvements in technology that are linking pesticides and seeds more closely together.

The target closure date for Syngenta’s takeover was last year postponed to the first quarter of 2017, but EU antitrust regulators in January extended the deadline for their decision to April 12.

Approvals from 13 regulatory authorities have been won but go-aheads from Brazil, Canada, China, the European Union, India, Mexico and the U.S. are still outstanding.

“ChemChina and Syngenta remain fully committed to the transaction and are confident of its closure,” Syngenta said.

CEO Erik Fyrwald told Reuters he was confident the deal would win approval from China’s MOFCOM regulator without causing any delay. The deal was making good progress with U.S. and EU regulators as well, he said.

ChemChina is set to secure conditional EU antitrust approval for its bid, the largest foreign acquisition by a Chinese company, two people familiar with the matter told Reuters last week.

Bridge financing to close the deal was in place and irrevocable, finance chief Mark Patrick said, while the partners were working on the structure of longer-term financing.

Syngenta said it planned to push its annual meeting to June, given it was close to completing the deal.

It reported 2016 earnings before interest, tax, depreciation and amortisation (EBITDA) of US$2.66 billion on sales of US$12.79 billion. Analysts in a Reuters poll had on average expected EBITDA of US$2.61 billion on sales of US$12.85 billion.

UBS analysts said EBITDA in the second half was solid, “which bodes well for (agriculture) peers BASF and Bayer as well as suppliers such as Lanxess and Croda.”

For 2017, Syngenta said it was targeting low single-digit percentage growth in sales at constant exchange rates, an improvement in the EBITDA margin and strong free cash flow.

Reporting for Reuters by Ludwig Burger in Frankfurt and Michael Shields in Zurich.

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