China's biggest international takeover, the agreement by Syngenta (SYT) to be bought by ChemChina for $43 billion in cash, marks more than a record for the world's second-largest economy. It is a signal to the U.S. that, despite the emerging economy's stock market troubles, it is closing in when it comes to global mergers and acquisitions activity.
The board of the Swiss agribusiness company unanimously recommended the offer in a statement published on Wednesday, saying that "a Swiss and U.S. tender offer will commence in the coming weeks and the transaction is expected to conclude by the end of the year."
Europe has long been the U.S. companies' playground for M&A due to strong trade and historical links. But the Syngenta deal, if regulators approve it, shows that China, known mostly as the world's manufacturing base, is moving up to a new league.
The deal sent the Swiss pesticides and seeds maker's shares up by more than 6% at the open on the Zurich stock exchange, while its ADRs were nearly 4% higher in pre-market trading on the NYSE.
This is the latest in a string of European acquisitions by state-owned China National Chemical Corporation, which also bought iconic Italian tire maker Pirelli last year for about $9 billion and, more recently, a smaller German firm as part of a consortium. It has acquired about nine companies in Europe so far.
One company that is unlikely to take the news well is Monsanto (MON), which is being left behind by the deal. Syngenta rejected its cash and shares takeover approach last August when it said it was considering a rival bid from ChemChina instead. At the time, Monsanto's management said they were looking into the merits of a fresh offer.
If approved by regulators, the merger will offer Syngenta's products better access to the huge Chinese market, while ChemChina will gain a firm footing not just in Europe, but also in North America from which come about a quarter of Syngenta's sales.
The Chinese company will also gain access to Syngenta's research and technology in the field of seed development. This is probably a bigger danger for Monsanto.
The U.S. giant is already under threat because of the announced merger between Action Alerts PLUS portfolio holding Dow Chemical (DOW) and DuPont (DD). (Click here to read Jim Cramer's take on that merger announcement. And if you want to see what's in the portfolio, take advantage of the Open House offer, which gives you free access to everything that is normally behind the paywall.)
Getting together will boost the two companies' firepower and this, along with Syngenta's deal with ChemChina, leaves Monsanto increasingly isolated in the battle for market share, but also for developing new technologies.
There is, of course, the possibility that U.S. regulators will not approve the deal, since the push of Chinese companies into the West has been a politically sensitive issue and the presidential election is approaching.
But as every trader knows, hope is not a strategy. This deal is a reminder to Monsanto that it had better choose another acquisition target.
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