ChemChina's takeover of Syngenta may prove to be one of the most game-changing acquisitions in recent years.
Worth about US $43 billion, the all-cash bid is the biggest foreign purchase made by a Chinese company and the most expensive transaction on record in the agribusiness industry.
Syngenta is the leading producer of agrochemicals and third largest provider of seeds, operating in 90 countries and posting annual sales of US $15.1 billion in 2014, its highest in five years. A recent slump in crop prices, however, coupled with instability in emerging markets and highly volatile exchange rates, slashed the Swiss company’s 2015 sales by 11 percent and its net profit by 17 percent.
Syngenta’s rocky year came with several takeover offers from fellow agribusiness giant Monsanto, which peaked at a cash-and-stock bid of US $47 billion, but it was ChemChina who eventually sealed the deal. The state-owned company boasts of a diverse portfolio that includes chemicals production, tire and conveyor belt manufacturing, crude-oil refineries, and even a fast-food chain.
China’s Food Woes
Food security is a major driving force in ChemChina’s pursuit of Syngenta. Only about 10 percent of farmland in China can efficiently produce crops and with nearly 1.4 billion people to feed, the country has had to depend on food imports. The acquisition of Syngenta comes with access to high-value biotechnology including nearly 7,000 patent-protected seed varieties, a sizable stockpile for achieving self-reliance in food production.
While there is an existing ban in China on genetically modified crops, the state council’s policy document released this year calls for a “cautious rollout of GM technology,” which signals an eventual acceptance of biotech crops. For Syngenta, this is a lucrative opportunity to gain more access to the Chinese market. It sees a stronger presence in China as a way to improve the reputation of GM products in the country.
Meanwhile, the new capital would allow the company to increase investments in research and development. It is confident that its corporate identity will remain intact despite becoming a subsidiary. Company headquarters will stay in Switzerland, there will be no job cuts, and operational disruptions will be minimal.
Following the Dow Chemical-Dupont merger last year, the ChemChina-Syngenta deal bolsters the trend of consolidation in the agribusiness industry. Mergers and acquisitions are the quicker way to raise capital and foster growth at a time of plunging commodity prices and rising R&D costs. A day after the takeover deal was announced, industry insiders were already speculating about a deeper alliance between Monsanto and German chemical company BASF.
To gain competitive advantage, companies must be able to provide a diverse array of products and services, from seeds and agrochemicals to technological solutions for optimizing farm output. This requires top-notch R&D and the ability to manage highly complicated supply chains, which would be easier to achieve through consolidation. Standing alone means facing the risk of being edged out in an increasingly demanding market.
As more companies turn to consolidation, supply chain management must strive to keep up and make operational transitions as seamless and efficient as possible. Merger talks and takeover bids may dominate headlines, but M&A success is ultimately measured by how well separate corporate entities can integrate and work together to achieve growth.