Merger Arbitrage Blog

Agrochemical Mega-Tieups Updates on Merger Progress

ChemChina and Syngenta had submitted concessions to EU commission according to EU antitrust filings and major news reports. According to sources indicated in the Reuters News report, the concessions are likely to be minor and less than $500 Million in value. These concessions will be addressing products which had little competition in addition to commitments to research spending.

Earlier after announcing an extension to the deadline for EU final decision to 12th April 2017, the companies had reiterated their commitment and confidence that the deal will close duely.

On the financial side, ChemChina is raising up to $5 billion in equity in China with the help of China Postal Bank to help finance the deal and bring down overall leverage of the debt needed.

In Brazil, the merger review is also progressing well and we should see a decision soon.

Despite all these positive news, the merger spread remained at a high 16%. Assuming a closing in 3 months’ time, the gain on per annum basis could be about 65% which is a good return, considering that the Bayer-Monsanto merger spread is only about 18%. Regulatory wise, I believe the odds are tipped highly positive to a successful deal close although there may be still some other pitfalls mainly: China / US politics and policies and ChemChina’s financing ability.

The other big agro-chemical tieup deal – Dow/Dupont, is still very much in the balance. EU commissioner Vestager recently made the comment that the review on the Dow/Dupont merger is still very much in the open.

Dow/Dupont still need to clear Australia after the ACCC raised several issues about the merger after their initial investigations. Other regulatory clearances that are pending include Brazil, US and EU. The companies recently sat before a panel of EU commissioners and other market participants to plead their case regarding the merger in a final effort to convince regulators to approve the transaction before the EU deadline in Feb 2017. One sticking concern for the regulators could be the $300 million saved from syngeries arising from research cost. EU commission had repeatedly emphasized the importance of research and are worried that the mergers will lead to less innovation in the agro-chem sector.

Another potential roadblock is whether the new Trump administration is friendly to the merger.

Updated: January 11, 2017 — 8:11 am

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