ChemChina, Syngenta deal clears EU hurdle on disposals commitments

05 April 2017 12:28 Source:ICIS News

Syngenta headquarters

LONDON (ICIS)--The European Commission approved on Wednesday the acquisition of Swiss agrochemicals major Syngenta by ChemChina after the latter committed to divest part of its pesticide European assets.

On 4 April, the US antitrust authorities also approved the transaction, subject to conditions, leading Syngenta to predict a second-quarter close for the $43bn deal.

"It is important for European farmers and ultimately consumers that there will be effective competition in pesticide markets, also after ChemChina's acquisition of Syngenta,” said the Commissioner for competition policy, Margrethe Vestager.

“ChemChina has offered significant remedies, which fully address our competition concerns. This has allowed us to approve the transaction."

Apart from pesticides, the Commission said it also feared a lack of competition plant growth regulators, used in agriculture to slow or stimulate a crop's growth and development.

“The Commission's investigation showed that the parties would have held high combined market shares for a number of pesticides and for certain plant growth regulators, “ said the executive body in a statement.

It added ChemChina has committed to sell  a “significant part” of the European portfolio of its fully-owned generic pesticides producer Adama, as well as some of Syngenta's pesticides, once the Chinese chemical major becomes its owner.

The Commission said ChemChina is to divest as many as 29 of Adama's generic pesticides under development and access to third parties to studies and field trial results for these products; a significant part of Adama's plant growth regulator business for cereals; and all relevant intangible assets underpinning the divested pesticide and plant growth regulator products.

“The Commission concluded that the divestment package will ensure that effective competition is preserved in pesticide and plant growth regulator markets after the takeover.”

In a joint press release, ChemChina and Syngenta reiterated the clearing by the EU antitrust authorities made them confident to be able to seal the deal by the end of the second quarter.

“This [EU’s antitrust authorities approval] represents a major step towards the closing of the transaction, which is expected to take place in the second quarter of 2017,” they said.

The US' Federal Trade Commission (FTC) said on 4 April it had approved the transaction after concluding ChemChina's acquisition of Syngenta would eliminate the direct competition that currently exists between ChemChina’s generics subsidiary Adama, which is a large supplier of generic pesticides in the US, and Syngenta’s branded products.

“The merger would also increase the likelihood that US customers buying [pesticides] paraquat, abamectin and chlorothalonil would be forced to pay higher prices or accept reduced service for these products,” it said.

The FTC's proposed settlement requires ChemChina to sell all rights and assets of Adama's US crop protection businesses to California-based agrochemical company AMVAC.

Chemical equity analysts at Bernstein Research said that the divestments from this latest round of consolidation in the agrochemical industry is unlikely to have German chemical major BASF as one its protagonists, given the nature of the assets to be divested.

After the merger of US chemical majors Dow Chemical and DuPont, from which a new entity for agrochemicals will be born, the acquisition of Syngenta by ChemChina has left BASF's own agrochemicals operations as a smaller player.

"No prized assets to be divested. Adama is effectively divesting generic crop protection products and plant growth regulators. We think the products Syngenta is divesting are also branded generics with total annual sales of less than $150m p.a. [per annum]," said the Bernstein analysts.

"Potential buyers for ChemChina/Syngenta divestitures are more likely to be other generics companies (e.g., FMC, Nufarm, Sumitomo) given the nature of these products (rather than BASF)."

Pictured above: Syngenta's headquarters in Basel, Switzerland
Source: Sipa Press/REX/Shutterstock

By Jonathan Lopez