Chemical Giants Merge

There have been several significant announcements in the last quarter of the year in our industry. None of them involved a new technology. All were announcements by large competitors that they were downsizing, rightsizing, or potentially quitting the seed business. The CEO of DuPont/Pioneer “retired” under pressure as the business analyzed deep cost cutting, notably Pioneer has been losing market share in recent years. The CEO of Syngenta resigned after rejecting a Monsanto takeover bid that represented a 43% premium to shareholders over the stock price. Monsanto announced they will lay off 2600 employees to cut cost and shore up the stock price, which slipped in the wake of the failed Syngenta merger. Expected to be hardest hit are the seed brands purchased by Monsanto.

Earlier this fall Dow announced publicly that they were thinking of divesting its ag sector businesses, unprecedented that this gets aired publicly. Hard to be surprised that Dow and Dupont announced a “merger of equals” this week. It is a merger of chemical giants that happen to own seed companies and the expectation is that the Dow brands (Mycogen, Dairyland, Brodbeck, Prairie and Pfister) will be spun off. The transaction won’t close until late 2016 and divestiture might not happen until 2018.

A Chinese chemical giant has offered Syngenta $44 billion, all cash. Lucrative as this sounds many believe it is leverage to get Monsanto back to the table and we believe that ultimately Monsanto and Syngenta will merge. At this moment we have no insight into how this will affect the seed businesses they own. The bigger impact will be the trait technologies they each control and how they come to market. We don’t expect any change in the traits currently offered, but in the future release(s). Broadening the potential trait and genetic combinations available at the same time increasing the value of those offerings by reducing competition.

More than 2/3 of all the seed sold in the United States will be directly impacted by these transactions. In addition, all involve very large companies with timetables measured in years instead of months. It is staggering to realize the percentage of units that will be in turmoil and the decision process will be driven by chemical companies and that segment of the business.

December 2015 Earfull Newsletter
Written by Jeff Renk