Dow’s Mooted Ag Sale Sparks Speculation

27.10.2015 -

Chemical market watchers are looking especially intensely at the agriculture sector in the wake of the failed takeover of Switzerland’s giant, Syngenta, by US giant Monsanto. As analysts believe the market is ripe for a shakeout, they are launching bets as to who will do deals with whom.

The sector is already in turmoil, with earnings down throughout. In the US, reduced farmer incomes are creating pressure, as is the stronger dollar. On both continents, players are reporting lower earnings and top managers taking their leave.

A weak performance in the Brazilian agriculture sector, which pressured quarterly earnings, has been blamed for the resignation of CEO Ellen Kullman, along with her run-in with an activist investor. In the meantime, Mike Mack has stepped down as CEO of Syngenta, after reporting disappointing third-quarter results and taking the heat from investors for deflecting the Monsanto bid.

Germany’s Bayer has already been identified as a potential purchaser of the vegetable seeds business Syngenta plans to sell to appease shareholders, and DuPont is being touted by some analysts as a candidate to buy Dow Chemical’s agriculture activities.

In its announcement last week of a two-to-three year plan of “targeted actions” for underperforming assets, Dow said it is preparing to “review options” for its agricultural seeds and sprays division, Dow AgroSciences.

“Given the potential synergies in a newly consolidating agriculture market, an attractive opportunity to release value may be opening up to us,” said CEO Andrew Liveris. “We’re open to all construct that releases more value,” he added, “including floating a minority stake or a spin-off.”

One analyst who spoke to the news agency Reuters thought a sale could fetch about $15 billion. Another said he believes buying the Dow assets would give DuPont the scale to compete with bigger players, especially in the crop protection segment.

For Monsanto, the Dow division would be uninteresting, the analysts said, as its sales revenue is only half that of Syngenta’s.

If it bought the Dow business, DuPont’s global market share is seen as leaping forward to about 16% thus bringing it into line with its European rivals Bayer, BASF and Syngenta.

Gaining access to Dow’s genetically modified corn and soybeans would also help DuPont to boost its traits business, the calculation goes. Many observers nevertheless believe the Delaware company may be busy wallowing in its own misery to make a move.