Monsanto sows seeds of inversion with Swiss rival

Aaron Kirchfeld, Andrew Noel in London and Patrick Winters in Zurich

The desire to avoid US corporate taxes has now spread to agricultural giants – as a dead deal shows.

Monsanto, the world's largest seed company, which reports quarterly figures tomorrow , and is currently worth $64 billion, recently explored a takeover of $34 billion Swiss rival Syngenta in a transaction that would have allowed the US 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 US firms in many sectors are trying to avoid corporate taxes by moving their headquarters overseas.

US drugmaker Pfizer pursued British group AstraZeneca, offering as much as $117 billion before abandoning the deal, while 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 US 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 and BASF and Dow Chemical in the US.

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 US 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, 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’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 and Holcim 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 have given another recent tax inversion deal a run for its money. Medical device maker Medtronic is the latest and largest company to say it will renounce its US address as part of its planned $42.9 billion takeover of Dublin-based rival Covidien. The tax-inversion strategy may free up almost $14 billion in cash that Medtronic now holds outside of the US, allowing it better use of those funds.

For Syngenta, change and adaptation is part of its DNA. The company was spun off from Novartis in 2000 in order to merge with Zeneca Agrochemicals, weakening its links to Switzerland and opening up its shareholder base.

Chief executive Mike Mack, an American, takes a pragmatic approach to shareholder value, with an open view to transactions, according to one of the people.

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 US 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 for biological solutions, including using beneficial insects, to tackle pests and disease. The US company’s partnerships also include some with BASF.

“BASF might object to it as they have a long-term R&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 US corn.” - Bloomberg