Syngenta Chairman: «Going alone is hardly an option anymore»

Michel Demaré, chairman of Swiss agrochemical company Syngenta, confirms high-level takeover negotiations with several potential partners.

Mark Dittli und Andreas Meier

Hardly a day goes by without any new rumors about Syngenta, the Swiss agricultural chemicals company. In summer of 2015, Syngenta rebuffed several takeover attempts by U.S. rival Monsanto. As per the latest rumors, ChemChina is said to have cast an eye on the global number two player with annual sales of 15 billion dollars. Michel Demaré, chairman of the board of Syngenta, confirms in an exclusive interview with Finanz und Wirtschaft that the company is in advanced, formal negotiations with several possible partners.

Mr. Demaré, are you in talks with ChemChina and Monsanto?
Yes, but not just with these two often in the press mentioned companies. The whole industry is talking to each other. As far as we are concerned, we know that we have to come up with a value-creating solution. Early in the year, you could still consider that it was possible for Syngenta to go standalone. What has changed are the dynamics around the Monsanto offer which has created quite some uncertainty among our shareholders. I don’t think I need to go back to the question why this deal did not go through, but frankly I don’t think it was our fault. Our shareholders now have a clear expectation of the value they want to see delivered, while at the same time we have an industry that is in a very difficult point in the cycle. 2016 does not look that good. So it became clear that we cannot deliver our shareholders this kind of share price performance in the next twelve months.

Are you saying the standalone option is not viable anymore?
Let me put it this way. If you have the patience to wait for cycles to materialize, then it would be possible. But in these circumstances, where our shareholders have a kind of a benchmark share price, what they think this company is worth, it is very difficult to say that we can deliver this in the next twelve months. The second argument: The whole industry is consolidating. In the beginning of the year, we had six major players, but now when our competitors are getting together and we stay alone, we might be more challenged. So we have to look at our options.

Which are?
One, we could make an acquisition, although there are not many options left. Two, we could do a merger with another competitor, or three we could sell the company. We, the board, look into these three options and try to see what creates the best combination of short term value, long term prospects and also what is the best for our employees, our customers and our community.

Some shareholders say you should do more.
I can assure you I am working 150% concentrated on this issue. I don’t know what we could do more at this stage.

Of the three options you outlined: Do you have a favorite?
We are in negotiations, and you understand that we should not show our cards right now. But at the end of the day, we have to find a combination of good value, good business development overall and a minimization of risks. The board has to weigh all this, before we can make a recommendation to shareholders.

What kind of risks?
By that, I mean very important antitrust issues, cultural issues. If you make a merger of two companies, you have to make sure these two companies fit well together. If you remember, with the Monsanto proposal, we would have had to sell our seed portfolio and replace it with the Monsanto seeds. How does that all culturally fit together? Plus, there might be tax issues. For instance, the scheme that Monsanto had offered, with a tax inversion plan, would not have worked with the new rules set out by the US Treasury.

Is there an offer on the table today?
There is not offer on the table at this stage, but we are in pretty advanced, formal and intense negotiations. Things are fluid. Something can happen anytime.

And these negotiations are with ChemChina?
I don’t confirm that. We are talking to more than one player.

One in China and one in the U.S.?
I can’t comment. But look, there are not so many players around. We keep our options open.

Monsanto and ChemChina are very different. With ChemChina, there are no synergies, Syngenta would probably remain pretty much standalone, right? What would the strategic thinking there be?
Under the assumption that ChemChina might be one of the options, there are also rather significant potential upsides. China needs food security and technology to feed its population, because they don’t have the resources to produce all the food needed in China. They need to invest globally and need to identify strategic partners in terms of food security. So there are quite some potential synergies. The only further comment I would make on China is that it is a serious partner and needs to be considered. The Chinese have done several big acquisitions in the West in the past, and they have mostly been successful, if you look at examples like Volvo (VOLV A 189.10 -0.63%) or Lenovo. So we have to look at a ChemChina as seriously as we look at Monsanto, Bayer (BAYN 54.15 +4.78%) or BASF (BAS 44.16 +1.68%).

But Bayer and BASF have pretty much the same product portfolios that Syngenta already has.
Yes, that’s correct.

Do we understand it correctly, that Syngenta’s shareholder base has lost its patience, or is not willing to show the kind of patience this business needed?
Yes, that is true for several shareholders. It is an issue we felt very clearly from the start of the Monsanto approach. We don’t have an anchor shareholder that gives stability. It’s difficult to get a consensus opinion from shareholders: Some of them are extremely short-term and just want to see cash. Some others want to participate in the longer-term future. It’s very difficult for the board to act in the interest of all shareholders. In the end, we have to do what we think is best in terms of creating  value for all the shareholders while at the same time making the right thing for all the stakeholders, the employees, the customers. We try hard, we have visited about 50% of our shareholder base in the past 3 months. The message we sent them is that we, the board and I, are working extremely hard to find the best possible solution. But just give us some patience. A 40 billion-dollar deal is not something you do quickly.

Is a new CEO even being searched, or does that not make sense today?
The search process is going on. We are working with a headhunting firm to identify potential candidates. Meanwhile, John Ramsay is doing a very good job as interim CEO. Times are tough, cost control is key to keep the company focused. So there is no huge urgency to find a new CEO.

Was the merger of DuPont and  Dow Chemical a game changer in terms of your strategy with Syngenta? Did that make you come to the conclusion that standalone is not an option anymore?
No, we came to that conclusion before that. The whole thing started with the attack by Monsanto on Syngenta. Our competitors looked at this and said «My God, if this happens, if Number 1 and 2 go together, we will all be marginalized». So this started the consolidation game. For us, a combination with DuPont would have made a lot of sense. I was disappointed when the merger of Dow and DuPont happened, but it was clear that we could not compete against a 120 billion dollar merger.

With hindsight: What mistakes did you make in the Monsanto episode?
I would not say there were any mistakes in the way we negotiated with Monsanto. As I said, frankly, the responsibility for the deal not going through was more on their side. Monsanto tends to play the runaway bride, coming close and then escaping at the last moment. We had very specific questions that were left unanswered: On the synergies, tax benefits, regulatory risks. There was nothing else we could do.

And in terms of communication with shareholders?
Yes, I should have engaged more with them during this phase, listen to them, even though I could not tell them much of substance.

At the time, you said the price that was offered, CHF 449 per share and later CHF 470, was way too low. Is that still your opinion?
I said that at CHF 449, yes. You have to realize we are at the low point of the business cycle. This is not the time where a board likes to sell the company on the cheap. It is clear: If somebody wants to buy Syngenta on the bottom of the cycle, the price needs to be a high cycle price. Otherwise it does not make sense for the board to sell.

If, hypothetically, an offer came at CHF 470 per share now: Would that be the high cycle price you are looking for?
You have to measure it compared to what our share price would be today if there were no permanent takeover rumors around. I would say this kind of price would get us closer to where it should be.

When do you expect to close the talks?
First, we have to reach a high level agreement on the values and the principles. That is something I hope we will be able to get done within the next few weeks. And then after that, we have to start negotiating all the details. That can take months.

How important in these negotiations are the sites here in Switzerland?
Very important. We are a well-established Swiss company, we have 12% of our employees here, our second biggest R&D center, one of our major production facilities. A partner that would value this Swissness of our business would have an advantage in my view. If he does not see any value in this, the Syngenta shareholder should have to be indemnified for this. I think the Swissness creates a lot of value for the Syngenta shareholders.

You mentioned the agricultural cycle and you said 2016 does not look good. Can you elaborate?
No, it does not look promising. Commodity prices are low, farmers are not investing much. The view so far is that 2016 will be difficult, and we won’t see the cycle picking up before early 2017. Again: That makes the defense of a standalone case more difficult.

With that kind of scenario: Are your margin goals for 2018 still valid?
Absolutely. We have launched an aggressive cost efficiency program, eliminating 1 billion dollars of costs until 2018. You will see that this year we will be able to show an improved margin, probably as the only one in the industry.

Do you still get a lot of pressure from shareholders now?
We have taken a lot of initiatives to go and see them. Yes, they want to see something happening. But negotiations have to be behind closed doors to be successful. All I can say is that I am working very hard. Trust me, we are trying to optimize the value and get the best out of Syngenta.