China National Chemical Corp.’s potential merger with another state-owned enterprise isn’t likely to derail the company’s $43 billion takeover of Swiss seed and pesticide maker Syngenta AG, according to analysts and traders.
China plans to merge ChemChina with Sinochem Group as the government continues its overhaul of state-owned enterprises, according to a person familiar with the matter. Combining the two companies would bring together assets of more than $100 billion.
The Syngenta acquisition “won’t be delayed because of these discussions,” said Justin Tang, director of global special situations at Religare Capital. “The deal has come a pretty long way with most of the approvals achieved. The Syngenta deal has to go ahead first.”
The Chinese merger plan comes just as ChemChina and Syngenta were entering the final stages for completion of their own deal by year-end. The spread between the Swiss company’s share price and the $465 ChemChina offer price had narrowed, an indication that investors had become more optimistic of its success. Taking over Syngenta would be the biggest foreign acquisition for a Chinese firm and underscores the importance the country attaches to owning technology to boost farm output and feed the world’s biggest population.
CFIUS Can Overturn
Shares of Syngenta, the world’s largest maker of agrochemicals, dropped 2.1% to 411.70 Swiss francs Friday in Zurich with trading volume more than three times the 30-day average. Jennifer Gough, head of investor relations at Syngenta, said that the company has no knowledge of the Chinese merger and that it meets regularly with ChemChina.
The deal received approval in August from a U.S. national security panel called The Committee on Foreign Investment in the United States, or CFIUS. The panel can reopen a review of a deal and overturn approval.
“In theory, CFIUS could reopen its review if they feel there has been a ‘material failure to comply,’” Louis Capital risk arbitrage analyst Ben Kelly said by e-mail. “A change in control may be construed under that heading but a CFIUS reopening looks very unlikely even in the case of a Sinochem tie-up.”
CFIUS didn’t immediately respond to an e-mailed request for comment
Pending is a green light from the European Union for the deal. Margrethe Vestager, the trading bloc’s competition commissioner, told reporters in Florence that she had no detailed knowledge of any plan for ChemChina and SinoChem and had no plans to meet with ChemChina or Syngenta on Friday.
“It’s just very early days,” she said.
ChemChina has sought antitrust approval for the Syngenta takeover from the European Commission, which set an initial Oct. 28 deadline for a ruling. It wasn’t granted a fast-track procedure that would have allowed quicker clearance.
“We don’t believe, from a regulatory point of view, this will hinder the Syngenta-ChemChina deal because Sinochem has no agricultural assets,” said Christian Faitz, an analyst at Kepler Cheuvreux.
Sinochem is essentially present in the fertilizer business, which is “very separate” from crop protection and seeds, according to Raymond James analyst Patrick Lambert. Selling through different channels and without many synergies, antitrust authorities would see them as separate, he said.
The deal is one of three big tie-ups between companies that sell seeds and chemicals to farmers across the world. EU regulators opened an in-depth probe into a planned Dow Chemical Co. and DuPont Co. merger and suspended a deadline to seek missing data. Bayer AG’s bid for Monsanto Co. is the other major alliance.
“In terms of financial resources, it may be beneficial for Syngenta to have a larger owner,” Lambert said. “Syngenta will be a profitable part of that company once the agriculture cycle improves again, the balance sheet of the parent company will be stronger and it may be easier to refinance” the Syngenta acquisition.
--With assistance from Aoife White, Joshua Fineman, Jonathan Browning and William Canny.
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