Saturday 1 October 2016

China sews up €40bn deal to secure nation's food supply

Ludwig Burger

Published 04/02/2016 | 02:30

The chairman of ChemChina, Ren Jianxin, shakes hands with the chairman of Swiss farm chemicals giant Syngenta, Michel Demare, during a press conference to present Syngenta’s annual results at the company’s headquarters in Basel yesterday
The chairman of ChemChina, Ren Jianxin, shakes hands with the chairman of Swiss farm chemicals giant Syngenta, Michel Demare, during a press conference to present Syngenta’s annual results at the company’s headquarters in Basel yesterday

China has made its boldest overseas takeover move yet, with state-owned ChemChina agreed a $43bn (€39bn) bid for Swiss seeds and pesticides group Syngenta yesterday, aiming to improve domestic food production.

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The largest ever foreign purchase by a Chinese firm, announced by both companies, will accelerate a shake-up in global agrochemicals and marks a setback for US firm Monsanto, which failed to buy Syngenta last year.

China is the world's largest agricultural market. It wants to secure food supply for its population. Syngenta's portfolio of top-tier chemicals and patent-protected seeds will represent a major upgrade of its potential output.

"Only around 10pc of Chinese farmland is efficient. This is more than just a company buying another. This is a government attempting to address a real problem," a source close to the deal told Reuters.

Years of intensive farming combined with overuse of chemicals has degraded land and poisoned water supplies, leaving China vulnerable to crop shortages.

The deal fits into Beijing's plans to modernize agriculture over the next five years.

"I was sent to the countryside at the age of 15, so I'm very familiar with what farmers need when they work the land. The Chinese have relied mainly on traditional ways of farming. We want to spread Syngenta's integrated solution among smallholder farmers," ChemChina Chairman Ren Jianxin told a media briefing.

With growth slowing at home, Chinese companies are increasingly looking abroad for deals that can boost their business and help them diversify. If completed, ChemChina's Syngenta purchase would be more than double CNOOC's $17.7bn buy of Canadian energy company Nexen in 2012.

ChemChina last year bought Italian tire maker Pirelli and last month said it would buy German industrial machinery maker KraussMaffei Group for some $1bn.

Shares in Syngenta rose on news of the deal, but at around 412 Swiss francs, were some way below the agreed offer price of $465 per share, equivalent to 480 francs, reflecting market concerns that the deal could yet stumble over regulatory hurdles and limited expectations of a counter-offer.

"Syngenta has never been valued so highly. Over the last few years the company has failed to demonstrate it can generate reasonable earnings on its own," Patrick Huber, a fund manager at Mirabaud Asset Management said. Syngenta is the largest supplier of crop chemicals, excluding seeds, in China. (Reuters)

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