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Monsanto wants on tax inversion wagon

Tuesday, June 24 12:23:30

The desire to avoid U.S. corporate taxes has now spread to agricultural giants - as a dead deal shows.

Monsanto, the world's largest seed company worth $64 billion, recently explored a takeover of $34 billion Swiss rival Syngenta AG in a transaction that would have allowed the U.S. firm to move its tax location to Switzerland.

The deal, which is now defunct according to people familiar with the matter, is another sign of how U.S. firms in many sectors are trying to avoid corporate taxes by moving their headquarters overseas. U.S. drugmaker Pfizer pursued U.K.- based AstraZeneca, offering as much as $117 billion before abandoning the deal, while North Chicago, Illinois-based AbbVie is chasing Dublin-based Shire for $46.5 billion.

Monsanto and Syngenta held preliminary talks with advisers in the past few months about a combination before Syngenta's management decided against negotiations, said the people, who asked not to be identified because the talks were private. Company officials also spoke informally with each other about a potential deal, two of the people said.

There were concerns about the strategic fit, antitrust issues and relocating the company to Switzerland for tax reasons, they said. The talks, which valued Syngenta at more than $40 billion, fizzled out in late May, one of the people said. An additional concern was that U.S. politicians would close the inversion loophole, thereby removing that benefit, another person said.

Combining the two companies would have created the largest player in the world for both seeds and crop chemicals and a formidable competitor to German rivals Bayer AG and BASF SE and Dow Chemical Co. in the U.S. Syngenta is the world's largest maker of crop chemicals and strongest in Europe, whereas Monsanto is the largest maker of seeds and dominates the U.S. market for genetically modified crops like corn and soybeans.

"Investors would love it, it would create by far the biggest agricultural technology company in the world," said Patrick Rafaisz, an analyst at Bank Vontobel AG, adding that it would be a surprise if they pulled off such a transaction.

"We are not in discussions on this particular matter," Lee Quarles, a spokesman for Monsanto, said in an e-mail without elaborating. Paul Barrett, a spokesman for Syngenta, declined to comment.

Market speculation about further consolidation in the agrochemical market has always surrounded the leading players in the industry, including Bayer's CropScience, Dow Chemical and DuPont Co.'s Pioneer. Informal talks have been held on numerous occasions and Syngenta explored its strategic options prior to the financial crisis, according to two people.

While talks between Monsanto and Syngenta are currently on hold, there is a chance the deal could be revived, two of the people said. Cross-border deals, especially those facing antitrust and political resistance, are regularly abandoned before being revived. Lafarge SA and Holcim Ltd. agreed in April to merge to create the world's largest cement company, the second time in 18 months that executives tried to put together a transaction, people familiar with the matter have said.

A Monsanto-Syngenta deal would've given a recent tax inversion deal a run for its money. Medtronic Inc., a Minneapolis-based medical-device maker, is the latest and largest company to say it will renounce its American address as part of its planned $42.9 billion takeover of Dublin-based Covidien Plc. The tax-inversion strategy may free up almost $14 billion in cash that Medtronic now holds outside of the U.S., allowing it better use of those funds.

For Syngenta, change and adaptation is part of its DNA. The company was spun off from Novartis AG in 2000 in order to merge with Zeneca Agrochemicals, weakening its links to Switzerland and opening up its shareholder base. Moreover, Chief Executive Officer Mike Mack, an American, takes a pragmatic approach to shareholder value, with an open view to transactions, according to one of the people.

Syngenta stock has underperformed peers in the past two years, down about 8 percent in 2014. The company's U.S. American depositary receipts jumped 7 percent yesterday in New York. Monsanto was almost unchanged at $122.10, for an advance this year of 4.8 percent. BASF and DuPont have increased 12 percent and 4.6 percent this year, respectively. Monsanto is scheduled to release its third-quarter results tomorrow.

As well as adding the latest technology in agrochemicals, buying Syngenta would also allow Monsanto to remove a competitor that was putting time and money into building a rival seed business. The Swiss company has made a string of acquisitions, including the purchase of Sunfield Seeds, to build out its offerings, yet it faced a dominant Monsanto in the U.S. market.

Combining the seed and chemical companies would throw up complications for the increasing number of research and development agreements between the players. Earlier this year, Monsanto established an alliance with Novozymes A/S for biological solutions, including using beneficial insects, to tackle pests and disease. The U.S. company's partnerships also include some with BASF.

"BASF might object to it as they have a long-term R and D collaboration with Monsanto, and it seems like this is getting tighter," said Bank Vontobel's Rafaisz.

"Antitrust would be a problem, mainly in the seeds business where the two companies would become extremely dominant in certain areas like U.S. corn."