China’s strategy behind the Syngenta-ChemChina Merge

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Publish time:5/10/2017 12:00:00 AM      Source: CCM
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After ChemChina and Syngenta got the approval for merging without restrictions by Brazil authorities, only the approval of India is due until the two agrochemical giants can carry out the merge. China’s government is trying to modernize and enhance the way of agriculture with this transaction, while the global influence on worldwide agriculture will be more concentrated on very few key players.


 


The approval for the deal of ChemChina and Syngenta is almost finished, as more and more countries are giving their OK. The European Union and America already approved the merging in April, under certain conditions, while now also authorities in Brazil have granted green light without any restrictions, according to market intelligence firm CCM. China’s governmental approval also came without any conditions earlier this year.  


According to Syngenta, the approval of the huge merge by most authorities is backed up by the fact, that the company’s product portfolio is regional, with adaptions on each different market. Hence, the competition is not outweighing to their favor, when the company will merge with ChemChina.  


The last approval to be due is by the Indian competition authority, which will likely be achieved in May. After this, the merge can go into the next phase.  


Meaning for China’s agriculture

The deal has a huge importance for China, since only 12-15% of its land is useful for agriculture, despite the country being the largest producer of agricultural products worldwide. A growing middle class in the country with over 20% of the world’s population, demands more meat and dairy products, which cannot be sufficiently supplied by the current way of agriculture. Hence, China’s government is putting the effort in genetic modified crops and seeds to make the most effective use out of the land available.  


China used to be very depended on imports of high-quality crop protection products like pesticides and genetically modified crops. With the acquisition of pesticide giant Syngenta, experts see a national switch of China to become more self-sufficient in this area, which lessens the dependence on imports and developments in international markets.

 

However, China is still facing the low acceptance of gene modified crops for China’s population. Most of the people are looking very skeptical at artificially modified crops for consumption and prefer non-modified goods. Hence, the government has to do a lot of convincing work to prepare the growing middle class for the new types of crops in order to be able to meet the growing demand. 


A market of merge and acquisition

Syngenta is not the only large acquisition of a company for ChemChina, but it is by far the hugest one. The company already merged with Pirelli in March 2015, with Swiss’ Mercuria Energy Group in January 2016, as well as with German KraussMaffei Group in April 2016. While the volume of money in these previous deals reached from USD1 billion to USD7.7 billion, the deal with Syngenta is costing the company around USD43 billion. All in all, the company has acquired eight different foreign companies in recent years, which shows the trend to get a strong international foothold for China’s Chemicals giant.


The acquisition might be China’s largest takeover of a company up to date, but it is still surpassed by the proposed mega deal between Dow Chemical and DuPont, where USD130 billion are on the table.  


With the merging of Swiss’ biotechnology and pesticides giant Syngenta and China National Chemical Group (ChemChina), the concentration of countries with large power on global agriculture will even tighten up in the future.  


The merge of this two seed and agriculture giants is not the only large-scale business deal currently. The enterprises Bayer and Monsanto as well as DuPont and Dow Chemical are also waiting for approval to merge. When all of these mergers have been approved, the worldwide agriculture will likely be controlled by three main countries, namely the USA, Germany, and China.    



How will it continue

The Financial Times reported earlier that ChemChina would also merge with another Chinese chemical giant Sinochem Group, having in mind to ensure enough financial strength to acquire Syngenta in this huge deal. The merging of these two Chinese enterprises will lead to USD100 billion of revenues, according to financial experts in China. Both companies are owned by China’s Assets Supervision and Administration Commission, which is planning to combine the enterprises to ensure the necessary cash flow.  


Syngenta sells its products in more than 90 countries worldwide. The spectrum of sold seeds reaches mainly from cereals, corn, rice, soybeans and vegetables.  


According to Syngenta, the company will remain a western company based in China with the new ownership of a Chinese company. It will help to bring China’s agriculture to modern western standards, which it is still lacking behind significantly, achieving only 60% to 70% of yield compared to western agriculture.  


The transaction between Syngenta and ChemChina is expected to take place in the second quarter of 2017, according to the two companies.  


What’s more, the chemical giant BASF from Germany is the only big player not involved in any merger or acquisition plans currently. However, as part of the allowance for the other huge enterprises to merge, some of the business areas need to be sold in order to keep enough competition and avoid a monopolistic situation. BASF could play a big role in purchasing these areas.  


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