Share Watch: Big seed producers prepare the ground for merger spree
Published 23/11/2015 | 02:30
When you look at the projections for the world's population, the numbers get quite scary. This year's count is around the 7.2 billion mark, but the number of mouths that will have to be fed in less than five years' time will have grown to more than 7.7 billion.
Consider too, that as recently as 1950 there were only 2.5 billion people on the globe and it is obvious the challenge for worldwide food production is immense.
The leading agri-chemical and seed producers have been at the front of this challenge. Our company this week, the Swiss-based Syngenta, is one of them. The others are perhaps slightly better known - Monsanto, Dow chemical and Du Pont.
Syngenta makes crop protection products which include herbicides, insecticides, fungicides and seeds for field crops, vegetables and flowers.
Of course, the great seed companies are not just about ending hunger, they are also about making lots of money.
They are also increasingly about sectoral consolidation.
The Basel-based Syngenta was formed in 2000, the result of a merger of the agri units of the pharmaceutical companies Novartis and Astra Zeneca. Further back, their roots stretch to companies like Ciba, Sandoz and Geigy. Today Syngenta has a broad portfolio of crop protection and seed products concentrated on rice and vegetables in the Asia-Pacific region, cereals and sunflower in Eastern Europe and soya and sugar cane in Latin America.
It has almost 30,000 employees and is valued by the market at 33bn Swiss Francs. While Europe and North America account for almost half of its crop protection sales of $11bn, the key to future growth is in Latin America and the Asia-Pacific region
Syngenta sales last year were $15bn, up 3pc. Europe (including Africa and Middle East) has the group's largest sales at $4.5bn. Last year saw an 8pc growth with strong demand for crop protection.
Latin American sales and growth are slightly behind those of Europe helped by strong performance of a new fungicide. North America sales of $3.6bn declined by 7pc, not helped by prolonged cold temperatures.
In recent times, Syngenta has featured in the business sections following an unsolicited bid from Monsanto, famous, of course, for its genetically modified crops. The bid, worth $45bn, was said to be motivated by the desire to avoid US taxes, as the transaction would have allowed Monsanto move its tax location to Switzerland.
The combining of the two companies would have created the largest seed and crop chemical company in the world. It didn't happen, not because the economics of the deal were unattractive, but because of the formidable problems of perceived competition issues. Syngenta rejected the bid.
Like all rejected bids, there were repercussions. It got a group of Syngenta shareholders thinking about management's 'lack of performance' and other possible reasons why the bid was rebuffed.
To appease stockholders, a $2bn share buyback was proposed, funded by the sale of its flower and vegetable seeds business. Shortly afterwards, CEO Mike Mack resigned. Markets were left wondering where Syngenta would go from there. Some analysts believed consolidation in the sector was inevitable and that Syngenta could take an active role in any consolidation.
Few, however, expected another bid. This time it came from Chinese state company Chem China. The offer - the largest ever by a Chinese company - is said to be the same as the Monsanto bid. Syngenta rejected the Chinese bid. So it is now back to an industry shake-up. With Dow Chemicals considering the sales of its seeds and agri-chemical business, Du Pont seen as a break-up candidate and Bayer BASF sitting on the sidelines, it's game on.
However, given the merger mania at present, in a climate of low interest rates and freely available cash, nothing is impossible.
The next few months will be interesting in this increasingly important sector.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.