By: Ed Hammond, Aaron Kirchfeld, and Jeffrey McCracken
Monsanto Co., the world’s largest seed company, is quietly working with Syngenta AG to iron out regulatory concerns that could stymie its proposed takeover of its Swiss rival, people with knowledge of the situation said.
Antitrust lawyers for the two companies are discussing how to address regulatory hurdles that would arise from the combination, said the people, who asked not to be identified because the talks are private. The efforts don’t guarantee that Monsanto will raise its offer or that an agreement will be reached, the people said.
Syngenta would consider entering formal negotiations if Monsanto sufficiently raises its offer and provides a multibillion-dollar termination fee to compensate for the risks of completing a deal, said the people.
The Swiss firm considers something around 10 percent of the purchase price, which would amount to $4.5 billion at the current bid, as reasonable, one of the people said, though no concrete amount has been set.
Syngenta gained as much as 2.5 percent in Swiss trading, valuing the company at 40 billion francs ($43 billion). The stock has risen 36 percent since Bloomberg on April 30 reported the approach by the U.S. rival. Monsanto’s offer would represent a 43 premium to the price at the time.
“Evidence is mounting that an offer from Monsanto, either friendly or unfriendly, will happen in the foreseeable future,” Vontobel’s analysts said in a note. “But we also see considerable transaction risks which could eventually bring the deal to fall.”
At 10 percent of the deal value, a reverse-termination fee for failure to get antitrust approval “would not be out of line for a deal of this size and complexity,” according to Bill Kavaler, an analyst at Olivetree FG in New York. That’s distinct from a break fee in the event of a superior offer.
The antitrust termination fee for Google Inc.’s $12.5 billion acquisition of Motorola Mobility Holdings Inc. would have been about 21 percent, Kavaler wrote in a note Tuesday. AT&T Inc.’s fee to pull its bid for T-Mobile USA Inc. amid regulatory opposition was about 11 percent of the $39 billion deal value, he wrote.
A spokesman for St. Louis-based Monsanto declined to comment on the talks, while a representative for Basel, Switzerland-based Syngenta declined to comment on speculation.
Syngenta, which snubbed Monsanto’s offer of 449 francs a share because it deemed it too low and the execution risk too high, may be willing to consider a bid of at least 500 francs a share, a person familiar with the matter said last week.
The Swiss company would also like Monsanto to increase the portion of cash versus stock in the offer to minimize the risk of the U.S. company’s shares declining in value as they seek approval for the deal, one of the people said. Monsanto’s proposal offered 45 percent in cash, according to a Syngenta statement last month.
Syngenta is of the opinion that Monsanto is underestimating the raft of competitive, social and political opposition from regulators, politicians and farmers to a deal to merge the world’s top genetically modified crop supplier with the No. 1 agrochemical maker, the people said.
Monsanto has said publicly that it would sell Syngenta’s conventional and genetically modified seed businesses were it to succeed in its takeover. Selling the seeds unit plus some herbicide businesses could generate $8 billion, according to a note from Deutsche Bank AG.
Originally Published: Bloomberg