DuPont Exploring Agricultural Deals With Syngenta, Dow Chemical

The agro-giants dominate “Big Ag” and “Big Wildlife”, a coalition of universities, agencies, legislators and NGOs. Their destructive practices harm free markets, the environment, habitat, wildlife, and our society. Allowing the giants to grow larger makes this worse.

Monopolies share the following characteristics: They are inefficient, unprofitable, mistreat their customers & employees, and won’t innovate. Despite subsidies and protection from competition, the agro-giants can’t turn a profit. Their proposed “cure”? Further consolidations!

NOTE: Article Originally Appeared on WSJ.com 

Deal talks come as low crop prices pressure profits

Some of the world’s largest agricultural companies are looking to combine with one another as three years of shriveling crop prices have pressured profits, in 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 Co.’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 profits in the global market for genetically modified seeds and chemicals to kill weeds and insects. The manufacturers also face growing challenges from pests developing resistance to commonly used products, along with mounting consumer scrutiny of crop chemicals and biotech seeds.

wsj_farm_chemistry_chart

“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 fund Third Point LLC at Dow Chemical, while some Syngenta shareholders in October formed a group to protest Syngenta’s spurning of 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 the start of last decade formed the “big six” group of companies—which also includes Bayer AG and BASF SE BASFY 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.

Farmers were enjoying a prosperous period 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. MS 0.37 % 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 had rejected the move as overly costly and providing few clear benefits.

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.

Farmers, however, remain leery of the increased pricing power that farm groups 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.”

Here is a “cure” that fosters health: Enforce the antitrust laws that have been on our books for 100 years. Break these companies up. Reintroduce free markets and competition. This is healthy for stockholders, consumers, & employees, the environment and wildlife.

Posted by Chris Gill

Ranching, wildlife management, finance, oil & gas, real estate development and management.

  1. This is absolutely fascinating, and I am proud to know all of you Gills! KUDOS for all you are doing in that beautiful country. Best wishes for a blessed Christmas and Bountiful and Healthy New Year! Thank you for adding me to your Newsletter Mail List!

    Wandita Ford Turner, San Antonio, Texas

    Reply

    1. Thank you Wandita!!

      Chris

      Reply

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