We've been avid followers of Syngenta AG (SW:SXX) for a while. And we're not alone. In recent times the Swiss agribusiness giant has been courted by both its chief global rival, Monsanto (NYSE:MON), and the state-owned enterprise China National Chemical Corporation (ChemChina). Neither of these approaches proved successful; a $46.6bn (£30.3bn) bid from Monsanto was rejected on the basis that it undervalued Syngenta and did not fully take into account regulatory risks; the latter determination was also the chief stumbling block in the subsequent $42bn offer from ChemChina.
- Potential takeover target
- Long-term growth underpinned by demographic trends
- Strong proprietary product base
- Sector consolidation
- Antitrust issues in prospect
- Unfavourable market conditions
It has been widely reported that ChemChina is discussing a revised proposal to acquire the world's largest pesticide maker, although Syngenta is also rumoured to be holding informal talks about a tie-up with Monsanto, almost four months after rebuffing its advances. It's obvious that Syngenta is already on the Christmas wishlist for these bidders, especially following the October departure of chief executive Mike Mack; the man that fought the suitors off last time. Broker Liberum Capital recently made the point that the pressure to consolidate within the agrochemical industry is set to intensify if the planned merger between Dow Chemicals (NYSE:DOW) and DuPont (NYSE:DD) comes to fruition. It means that Syngenta, in all likelihood, could end up in the crosshairs for another bid in 2016. With the group's current share price 28 per cent below Monsanto's original cash/share bid of CHF470 (£315) a share, we believe Syngenta now offers a relatively low-risk, income-generating takeover play for investors.
It could be argued that Syngenta is open to a merger approach because the group - a major manufacturer and marketer of seeds and pesticides - has been struggling in the face of unfavourable market conditions. Full-year revenue is likely to be constricted through a combination of weak commodity prices, currency volatility and a tight credit market. Syngenta's global reach is obviously a major plus point for the group, but it also means that its international sales have been negatively impacted by the appreciation of both the US dollar and, latterly, the euro. It's also worth remembering that the global agricultural industry is exposed to cyclical fluctuations brought about by changing climatic conditions. And this year, farmers across the globe are feeling the disruptive effects of one of the strongest El Niño weather systems ever recorded.
We can see that Syngenta is now probably vulnerable to an approach, particularly as management has come under criticism from investor groups because of the way it handled the Monsanto bid. And there is certainly no shortage of attractions for a potential suitor. The Switzerland-based group came about as the result of the merger of Novartis Agribusiness and Zeneca Agrochemicals at the turn of the millennium. Syngenta is the world's biggest crop chemical producer and the third-largest producer of proprietary seeds. The Crop Protection segment of Syngenta's business remains the primary revenue generator, with global sales of $11.4bn in 2014, while the Seeds business brought in $3.2bn.
SYNGENTA AG (SW:SXX) | ||||
---|---|---|---|---|
ORD PRICE: | 367.7f | MARKET VALUE: | CHF34.2bn | |
TOUCH: | CHF 367-368 | 12-MONTH HIGH: | CHF435 | LOW: CHF280 |
FORWARD DIVIDEND YIELD: | 3.4% | FORWARD PE RATIO: | 20 | |
NET ASSET VALUE: | $95.10 * | NET DEBT: | 41% |
Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share ($)** | Dividend per share (CHF) |
---|---|---|---|---|
2012 | 14.20 | 2.42 | 22.3 | 9.5 |
2013 | 14.69 | 2.11 | 19.4 | 10.0 |
2014 | 15.13 | 2.10 | 19.5 | 11.0 |
2015** | 13.20 | 1.92 | 17.2 | 11.5 |
2016** | 12.57 | 2.08 | 19.0 | 12.5 |
% change | -5 | +8 | +10 | +9 |
Matched bargain trading Beta: 0.95 1 Chf = $1.02 *Includes intangible assets of $3.15bn, or $33.91 a share **Liberum Capital forecasts, adjusted EPS figures |