(FROM THE WALL STREET JOURNAL 11/6/15)
By Jacob Bunge, Shayndi Raice and Eyk Henning
Some of the world's largest agricultural companies, battered by
three years of withering crop prices, are in talks to combine
business, setting up what would be the industry's first big
shake-up in at least a decade.
Syngenta AG is discussing with DuPont Co. a potential
combination with DuPont's agriculture division, according to people
familiar with the matter.
DuPont is also separately discussing a potential alternative
agriculture deal with Dow Chemical Co., which is exploring a sale
of its seed and pesticide unit, another person familiar with the
matter said.
The discussions are at an early stage and may result in no deal,
the people said.
But the deal talk has clearly gathered steam since Monsanto Co.
in August abandoned its effort to acquire Syngenta for as much as
$46 billion after being rebuffed by the Swiss company. That deal
would have created the world's largest supplier of seeds and
pesticides, but Monsanto now could face the threat of much-enlarged
competitors if its rivals end up combining and it strikes no
combination of its own, analysts say.
Executives have publicly signaled their interest in
consolidating, without being specific. Edward Breen, who became
DuPont's interim chief executive on Oct. 16 following the departure
of Ellen Kullman, said last week he has been discussing deals with
his counterparts.
"Everyone is talking to everyone," said Dow Chemical CEO Andrew
Liveris on a conference call last month, when his company announced
it is exploring deal possibilities for its agriculture
division.
U.S. farm income is on pace to hit its lowest level in nearly a
decade, pressuring profitsinthe globalmarket forgenetically
modified seeds and chemicals to kill weeds and insects.
The manufacturersalso face growing challenges from pests
developing resistance to commonly used products, along with
mounting consumer scrutiny of crop chemicals and biotech seeds.
"The natural evolution is to get together, cut costs, combine
R&D efforts and get scale," said Ari Gendason, senior vice
president of corporate investments for Continental Grain Co., an
agriculture-focused holding company that has owned seed-company
stocks. "If one [merger] happens, more than one will happen."
The recent deal talks follow mounting investor pressure to
improve returns.
Trian Fund Management LP has pushed for change at DuPont, as has
fellow activist hedge fund Third Point LLC at Dow Chemical. And
some of Syngenta's shareholders in October formed a group to
complain after the company spurned Monsanto's advances. Syngenta,
whose CEO abruptly resigned last month, has said it is selling its
vegetable- and flower-seeds businesses and reviewing its other seed
businesses.
Inexpensive debt, competitive pressure to secure merger partners
and other factors have fueled a broader deal boom that has put 2015
on pace to be the biggest year on record for mergers and
acquisitions.
A series of multibillion-dollar deals around thestart of last
decade formed the "big six" group of companies -- which also
includes Bayer AG and BASF SE -- that continue to dominate the
global seed and pesticide business.
The sector's last sizable deal closed in 2007, when Monsanto
acquired top U.S. cottonseed developer Delta & Pine Land Co.
for $1.5 billion, according to data compiled by Dealogic.
Times were good for farmers until 2012 thanks in part to
increased crop demand from expanding livestock and biofuel
industries, which helped sharply increase farm income and enabled
seed-and-pesticide makers to secure handsome margins for their
products.
But three straight years of bumper crops have swelled grain bins
around the world and pressured grain and oilseed prices. The U.S.
Department of Agriculture expects U.S. farm incomes to fall 36%
this year to the lowest level since 2006.
A combination of Syngenta with DuPont's agriculture unit would
control about 27% of global pesticide sales, according to data
compiled by Morgan Stanley.
Analysts say such a combination may require the divestment of
Syngenta's U.S. seed business to smooth antitrust concerns, as
DuPont already controls 35% and 33% of the U.S. corn-seed and
soybean markets, respectively.
Syngenta would keep its corporate base in Switzerland as part of
any deal, according to a person familiar with the matter.
DuPont and Dow's agricultural operations combined would control
about 17% of the global market in pesticides, becoming a close No.
3 behind Syngenta and Bayer, according to Morgan Stanley. Dow's
seed business also may need to be divested in such a
combination.
Trian last year had pushed DuPont to split off its agriculture
unit, but Ms. Kullman, then the company's leader, had rejected the
move as overly costly and providing few clear benefits.
Potential deals could also involve portions of seed or chemical
operations, versus entire units or companies, analysts said.
Most agriculture executives say that big crops and low commodity
prices are likely to continue, barring a major drought or pest
outbreak,deepening challenges for farmers and the companies that
supply them.
Brett Wong, an analyst with Piper Jaffray & Co., said the
current agricultural downturn "could be more elongated than people
might think."
Farmers, however, remain leery of the increased pricing power
that farm organizations say could come with increased industry
concentration.
Since 1995, the average cost of seeds has more than tripled,
while pesticide costs have risen about 11%, according to USDA data
that aren't adjusted for inflation.
Bob Young, chief economist with the American Farm Bureau
Federation, said he hasn't yet seen evidence that market
concentration is driving higher prices.
But he noted that "there's just not a whole lot of these guys
left, and you almost get to where you've got to take what they're
going to hand you."
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(END) Dow Jones Newswires
November 06, 2015 02:47 ET (07:47 GMT)
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