FOCUS: Syngenta Seen Possible Bidder For Dow Agriscience Operations
March 02 2009 - 12:55PM
Dow Jones News
Swiss crop science company Syngenta AG (SYT) is seen as a
potential bidder for Dow Chemical Co.'s (DOW) agricultural sciences
business, should the company decide to put the operations on the
block.
Syngenta has said it's preserving cash this year to be ready to
make acquisitions, and that it would look at the Dow agrosciences
unit if it came up for sale. Dow may sell the business to get the
cash needed to complete its purchase of Rohm & Haas Co.
(ROH).
"Such a potential deal would make sense for Syngenta, the
combination would free significant cost synergies in crop
protection," said Martin Flueckiger of independent brokerage
Helvea.
"According to first estimates, such a deal would be
value-accretive for Syngenta by around 10%," he said. Flueckiger
rates Syngenta buy, with a CHF300 price target.
Analysts expect merger and acquisition activity in the
agrochemical sector to intensify in 2009 as chemicals companies
streamline portfolios.
Bidders for Dow's agrosciences unit - which makes products that
combat insects and plant diseases - would be aiming to reduce their
cyclicality by increasing their exposure to the agrochemical
business, which in the past has proven to be relatively immune to
economic downturn.
"We don't know whether the operations are for sale, but if the
opportunity were there, it would be an opportunity we would look
at," Syngenta spokesman Medard Schoenmaeckers told Dow Jones
Newswires.
Analysts' valuations for the unit vary between $4.5 billion and
$6.8 billion.
Other companies potentially interested in the business include
Germany's BASF SE (BAS.XE) and Bayer AG (BAY.XE), as well as E.I.
DuPont de Nemours & Co. (DD) of the U.S.
Bayer, BASF and DuPont all declined to comment on whether they
would be interested in buying the unit.
Syngenta's Chief Executive Mike Mack said in early February the
company would look at acquisition opportunities, should they arise,
while there won't be a new round of last year's share buyback
program.
"We will rather use the cash to grow our business," he said in
an interview with Dow Jones Newswires.
The statements come at a time when Dow Chemical finds itself in
a tight spot.
In December, a Kuwait joint venture fell apart, depriving Dow of
$9 billion in cash it was planning to use to buy Rohm & Haas
for $15.3 billion. Rohm & Haas supplies chemicals to the
construction, pharmaceutical and electronics industries, as well as
for personal care products and paper processing.
Dow failed to close the Rohm deal as planned in January, saying
it would put the combined company in financial jeopardy, and Rohm
sued to force completion.
Dow Chief Executive Andrew Liveris has said the company is
looking to sell about a dozen assets, though he hasn't specified
which ones.
Flueckiger noted that a lot of question marks remain. Even if
the operations were for sale, it's not certain Syngenta would be
able to snatch them with a number of other companies also being
potentially interested.
However, analysts consider it likely that Dow will put the
operations up for sale. "Dow is in need for cash to finance its
M&A plans and the sale of AgroSciences could provide the
company with that," said Sal. Oppenheim analyst Juergen Reck, who
rates Syngenta buy with a fair value of CHF285.
He added that with Dow being a chemicals company, it would be
fairly easy to sell the agrochemicals business because it's less
interwoven with the parent company than other divisions.
Reck also cautioned that regulatory hurdles for such a deal may
be high. "If the regulatory authorities say that Syngenta is
gaining too high a market share for one of its products through
such a deal, it'll have to sell another product," he added.
Regulatory hurdles would be much lower for U.S. rival DuPont or
Germany's BASF, Reck said. "But BASF is still integrating recently
acquired Ciba Holding," he said.
DuPont already works with Dow in the seeds business, and could
be potentially interested too.
"DuPont could then become an integrated seeds and agrochemicals
business, like Syngenta or Bayer," he said.
Company Web sites: www.syngenta.com
www.dow.com
-By Julia Mengewein, Dow Jones Newswires, +41 43 443 80 45,
julia.mengewein@dowjones.com