A US national security watchdog is likely to look closely at China National Chemical Corp.’s takeover bid for Swiss seeds and pesticides group Syngenta AG on two issues – whether such a deal would compromise American food security and whether the combined company’s locations would be too close to American military bases.
Syngenta, based in Basel, Switzerland, has several US research and production facilities, which may draw interest from the Committee on Foreign Investment in the United States, Bloomberg News reported, citing lawyers who deal with security reviews for such cross-border transactions.
CFIUS, led by the Treasury Department and including defense and state department officials, reviews acquisitions of US businesses by foreign investors and can recommend the president block transactions it deems compromising to national security.
ChemChina and Syngenta officially announced the US$43 billion tie-up plan on Wednesday.
The companies will make a voluntary filing with CFIUS “even though no obvious national security concerns were identified during due diligence”, Syngenta said in a statement.
“There are no major obstacles,” Syngenta chairman Michel Demare said at a press conference in Basel.
Syngenta has a crop-protection manufacturing facility in Louisiana, a crop genetics research facility in North Carolina and a diversified chemical formulating facility in Omaha, Nebraska, with more than 2 million gallons of chemical storage.
The largest ever foreign purchase by a Chinese firm, the deal is aimed at improving China’s food production, Reuters said.
China, the world’s largest agricultural market, is looking to secure food supply for its population. Syngenta’s portfolio of top-tier chemicals and patent-protected seeds will represent a major upgrade of its potential output, the news agency said.
“Only around 10 percent of Chinese farmland is efficient. This is more than just a company buying another. This is a government attempting to address a real problem,” a source close to the deal told Reuters.
Years of intensive farming combined with overuse of chemicals has degraded land and poisoned water supplies, leaving China vulnerable to crop shortages.
The deal fits into Beijing’s plans to modernize agriculture over the next five years.
“I was sent to the countryside at the age of 15, so I’m very familiar with what farmers need when they work the land,” ChemChina chairman Ren Jianxin told a media briefing.“The Chinese have relied mainly on traditional ways of farming. We want to spread Syngenta’s integrated solution among smallholder farmers.”
With growth slowing at home, Chinese companies are increasingly looking abroad for deals that can boost their business and help them diversify.
If completed, ChemChina’s Syngenta purchase would be more than double CNOOC’s US$17.7 billion buy of Canadian energy company Nexen in 2012.
ChemChina last year bought Italian tire maker Pirelli and last month said it would buy German industrial machinery maker KraussMaffei Group for about US$1 billion.
Syngenta chief executive John Ramsay, who described the ChemChina offer as “very appropriate and attractive”, said he saw no major barriers and noted that ChemChina had secure financing in place.
“I think the overall regulatory approvals will not be very challenging,” Ramsay told Reuters, adding he expected antitrust regulators to acknowledge the limited overlap.
Syngenta’s board would still have to consider any rival offers, Ramsay said, although there are tough financial penalty clauses for both parties if they fail to deliver on the deal.
In a hint of what may be in store for the enlarged group, Syngenta’s chairman said ChemChina will be on the lookout for more deals as China strives to improve its food supply.
Beijing is seeking to cut reliance on food imports amid limited farm land, a growing population and higher meat consumption.
China’s combined consumption of pork, beef and poultry has grown by an average 1.7 million tons a year for the past decade, placing further stress on feed grain supplies.
Meanwhile, a global glut of corn and soybeans has depressed grain prices for the past three years, prompting US farmers to reduce spending on everything from equipment to seeds and pesticides.
The cutbacks, along with pressure from investors to bolster profits, have sent many of the world’s largest agricultural companies scrambling to cut deals.
Fees from the ChemChina-Syngenta deal could provide a US$166 million payday for the advisors, according to estimates from Thomson Reuters and Freeman Consulting.
For the largest ever foreign purchase by a Chinese firm, ChemChina was advised by HSBC and China CITIC Bank International.
They could share spoils of between US$65 to US$95 million in fees, according to the estimates.
On the other side of the table, Syngenta was advised by Dyalco, the one-man business of former Goldman Sachs investment banking co-chairman Gordon Dyal, alongside JP Morgan, Goldman Sachs and UBS.
Their fees could range from between US$59 and US$71 million, with the lion’s share going to lead advisors.
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