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Syngenta comments on rejected Monsanto takeover offer

Syngenta comments on rejected Monsanto takeover offer
Board of Directors Chairman for Syngenta says deal was rejected for not being in best interest of Syngenta stakeholders

In a new video out Tuesday, Syngenta Board of Directors Chairman Michael Demaré outlines the company's position on a takeover offer from Monsanto.

Syngenta has twice declined Monsanto's offer, which Monsanto COO and President Brett Begemann discusses in a recent Penton Agriculture interview.

Below, find the Syngenta response transcript and the full video.

Why have you been so reluctant to talk publicly about Monsanto's proposal? And why are you speaking now?

Syngenta Board of Directors Chairman Michael Demaré outlines the company's position on a takeover offer from Monsanto.

The Board has communicated very clearly about the Monsanto proposals in two very detailed press releases. We have also disclosed letters that were exchanged between the two companies. And we had two intents in doing so. The first one was really to show to everyone the full extent of the Monsanto proposal. And second to share with those shareholders the detailed position that we have decided to take. Now it's time to communicate again and to reconfirm this position and explain a little bit more the different concerns that we have. We want to do that concurrently with all our shareholders and the other stakeholders.

And why did you reject Monsanto's proposal?

Well the Board has done a very tall job in understanding and analyzing this proposal. We have unanimously concluded that the proposal significantly undervalued Syngenta's prospects, but as well, really underestimated the huge execution risk of this transaction, as well as the substantial damage that could occur to our integrated business.

The second proposal which came later was much easier there to make a decision because it was really a copy-paste of the first proposal. And so it was just the only difference was this break fee which we didn't think was appropriate as well. So it was a much more fast and immediate decision regarding this one.

Why aren't you engaging with Monsanto to address your concerns?

We have engaged. Our external legal counsel has met with Monsanto counterparts on three separate occasions to share our concern about antitrust, and also to give them an opportunity to come back to us with solutions. They did not do so. And the fact is that this is a very complex transaction which is being proposed. It will take a long, long time to be solved. And as a result of it there is a lot of uncertainties and no guarantee of completion. And so it is clear that it would be totally irresponsible for the Board to engage on the current proposed terms of this transaction.

Continue reading the transcript >>


But it looks like a big premium to where the shares were trading just a couple of months ago.

The proposal came at a time where Syngenta share price was short-term affected by two external events. The first one was the weakness of the emerging market currencies. And the second one is the low commodity prices that we are seeing for the moment, farmer income is at a multi-year low. This is a cyclical business and we think that the current prices are actually at maybe the lowest point of the current cycle.

As to emerging markets we have obviously invested enormously in the last decade to increase our penetration of emerging markets, which is all recognized by everyone as being the long-term powerhouse of this industry. But with high potential also comes short-term volatility and this is what happened in the last 18 months. So you put these two elements together I would say the share price was probably a bit unfairly affected by these two factors, and so we didn't think represented an accurate valuation of Syngenta's prospects.

For our shareholders it is also very important to focus not only on this execution risk which I have emphasized before but also to realize that if they want to capture the full value of this Monsanto proposal, given the fact that they are paid majority in shares they will also be very dependent on Monsanto's performance, on Monsanto's ability to rebuild from scratch an integrated business after having dismantled the existing one. And finally also they are going to have to receive a fair share of the synergies about which Monsanto has been quite silent so far.

But yet the company has missed many financial targets over recent years, and failed to deliver shareholder value, so why will the future be any different?

Well first let me put that a little bit into a historical perspective. Syngenta was created 15 years ago in the year 2000. And if you look at this period of 15 years during this period we have grown our sales at a compound annual growth rate of 7%. We have also grown earnings at a compound rate of 19%. And our share price has actually multiplied by more than 5 times, which means that it's a double-digit return every year since the year 2000. So I think this is quite an impressive performance. And it includes these last two years which we faced the headwinds that I have explained before.

If you even take in a bit of a short-term horizon the last four years I think it's important we launched an integrated crop strategy back in 2011. Since then in fact we have added $4bn in sales. We have increased our earnings per share by almost 20%. And that despite the fact that we have really heavily invested in growth, R&D, emerging markets etc. And on top of that we have returned $5bn to the shareholder either through dividend or through share buyback.

So I think the past speaks for itself, but what is even more exciting is the future. And I must say the Board is extremely enthusiastic at the current pipeline that we have in our crop protection products, at seeing more and more revenues being generated by our premier trade portfolio. We have clear plans in place to increase our margin in seeds. And we have also launched our cost efficiency program which is really starting to get traction at delivering savings at an accelerated pace.

So if you put all that together the Board is still quite confident today that we are going to deliver our growth target as well as our EBITDA margin targets for 2018, which is between 24% and 26%.

One last thing, one important thing, is that Monsanto has endorsed our strategy and has clearly demonstrated that it has great value. The only thing is they are trying to buy it on the cheap, and this is the third time they are doing that in four years.


But if you're so convinced of the merits of the integrated strategy why not combine with Monsanto to enhance that strategy?

Well it's a complex situation that is worthwhile to explain a little bit more. Syngenta is a truly global company. It spans eight key crops. It has a broad area of technology that goes across crop protection, across seeds and trades. And it's really present on every continent. Our sales to emerging markets represent more than 50% of our total revenues. Against that the Monsanto seeds business is much bigger that is true. But at the same time is much narrower. So putting these two companies together for instance would only increase the critical mass in two key crops, crop corn and soy. And would only be focused on the Americas where Monsanto has the strength.

It's our belief a truly integrated strategy is a strategy that has to go across many crops and be present everywhere in the world. And let's face it so far for instance it has worked the best for us in emerging markets. And we think that this proposal from Monsanto, the combination of the portfolios of the two companies is in fact not a truly integrated strategy and would considerably weaken all the great efforts we have done to launch this strategy in emerging markets.

You keep talking about significant execution risks. Are they real? And why is the proposed $2bn break fee offer not sufficient?

Oh yes they are real and they are very significant. And I'll try to explain that in simple terms if possible. This is a complex matter. Let's start with antitrust. As I mentioned before our external legal counsel has met with its Monsanto counterparts a number of times to really be open and try to understand where they were coming from, from an antitrust perspective. And these meetings in fact have raised even more concerns because we could see that Monsanto was taking a very simplistic approach to the problem.

Precedents in the United States and Europe and other countries have clearly demonstrated that regulators start paying more and more importance to broad aspects of antitrust which we call the vertical aspects, the non-horizontal aspects like for instance conglomerate impacts. And if you think of this new company that Monsanto wants to create it would be number one at market share, it will be number one in technology, in R&D and number one in IP. And it's very hard to imagine that with this set of facts regulators are not going to look for instance into those conglomerate issues.

So that will translate for sure in lengthy reviews made by many countries, not only USA, not only Europe but as well China, Brazil, Russia, Canada, India and others. And so it is clear that at the end of the day not only it will take a lot of time but it is very likely that it will come with even higher requirements of disposals, higher requirements of other remedies. Or and I think really it's a possibility a total rejection of the transaction.

The second part which is the practical aspect linked to the sheer size of the disposal that will be required. We have to look at it this way. It's going to be highly disruptive for Syngenta. How can we on one hand continue to market our integrated offers to our farmers whilst at the same time start to dismantle this integrated strategy across the world? It will have huge commercial and organizational consequences for Syngenta. And we really don't believe that a break fee of $2bn is going to even start to mitigate these impacts.

Monsanto has acknowledged by itself that it's going to take probably 18 months to get all the regulatory approval. So if you really think about it this new company will at best start being operational by 2017. Can we believe what will happen if at this time the antitrust authorities come and reject the transaction, the huge value destruction consequence that we will have. For sure a break fee of SFR20 a share will not even start covering this risk. So conclusion, yes, it is a very serious risk. It's not theoretical and it can be extremely substantial.


What about the notion of UK domicile and tax inversion?

That's a very good question. That's a very good question because it's really difficult to know what they intend to do. It for sure it was not our idea, we have not proposed this. This is quite clear for us. And today I am a bit confused whether they still want to continue with this concept or not. All I can say if I look at it from the Syngenta point of view is that Syngenta and the legacy companies of Syngenta have been in Basel for 250 years. We have deep roots there. We have a great relationship with the local government. And our shareholders today enjoy 100% of the benefits coming from the very competitive tax rates that we enjoy in Basel. So I have a hard time to see how a UK set up could be more competitive and especially for shareholders.

And are there any circumstances under which you would negotiate with Monsanto?

Well first let me remind, we say that many times before that Monsanto's proposal was unsolicited and unwanted. But still the Board has to make its fiduciary duty to review each proposal that comes to our table, and that's what we have done so far. And obviously we are committed to continue doing that in the future for any new proposal that would come either from Monsanto or from any other party for that matter. So that is obviously a very important point.

But let me be clear, a serious proposal to buy Syngenta has to be made at full and fair value. It has to recognize for shareholder the inherent combination benefits. And it has to provide a high degree of certainty that the transaction will be closed, including compensation in case the deal fails be it for antitrust reason or any other reasons. Absent these parameters I think the Board would be irresponsible to even accept to negotiate under such terms.

Continued reading: Monsanto president and COO talks about Syngenta proposal

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