Monsanto and BASF Could Strengthen Ag Ties
With the agricultural chemicals industry’s woes compounded by the planned merger of Dow and DuPont, and the likely takeover of Syngenta by ChemChina concentrating more power in the hands of fewer heavyweights, the other players are now seen as having to work harder to assert themselves.
For the latter two players, one logical scenario the news agency Reuters looked at, with the input of financial analysts and others in banking circles, is a deepening of the collaboration in plant R&D existing since 2007.
With its two grabs for Syngenta, US giant Monsanto was acknowledged to be seeking to diversify away from seeds, which account for 75% of its portfolio, and pick up assets in conventional crop protectants.
A wider partnership with BASF, world’s number three in the conventional field, behind Syngenta and Bayer, could serve the purpose to some degree. A shared research and sales organizations is seen as a likely first step.
For BASF, deepening its alliance with Monsanto could offer a welcome opportunity to increase its exposure to the seeds market without making an acquisition, a “very flexible model,” as the group told Reuters, commenting on the 9-year collaboration.
The plant science end of BASF’s agriculture business is already based in the US, after it moved headquarters to Research Triangle Park, North Carolina, after suffering planting setbacks in Europe.
The world's largest chemical producer by sales is developing improved plant characteristics such as drought tolerability but relies on partners such as Monsanto to bring finished seed products to market.
On average over the past four years, BASF’s crop protection activities have posted core earnings margins some 10 percentage points above the group average. Based on the multiples ChemChina offered for Syngenta, Reuters’ sources calculate the value of this business at €21 billion euros, based on median trading multiples of the past two years, up to €15 billion.
Looking at Bayer’s possibilities, the consensus is that the other German agrochemicals major will seek a major life sciences deal in the next few years, the news agency noted, adding that Monsanto is not likely to be a buy or be-bought-by candidate. The Leverkusen group has categorically ruled out a sale of its crop protection business.
For the market generally, analysts believe Syngenta is finally out of play as a takeover candidate. No bidder is likely to be willing to top ChemChina's offer, a multiple of 16.4 times the Swiss player’s 2015 core earnings including net debt.