Monsanto (MON) is trying to pull off the largest agribusiness merger ever.
The company made a $45-billion unsolicited offer for its rival, Syngenta AG (SYT) – a Swiss chemical company.
But on May 8, Syngenta rejected the offer, saying the price undervalued the company.
You can’t blame Monsanto for trying, though. A merged entity would be a powerhouse in agribusiness.
It would be the world’s biggest supplier of seeds, with a 45% share. And the largest provider of crop sprays to farmers, with a 30% share.
But Monsanto’s position as the leader in genetically modified foods (sometimes referred to as Frankenstein foods) means any deal would be highly scrutinized by many countries that have banned genetically modified organism (GMO) foods.
Fond Memories of Chemicals
The proposed deal makes a lot of sense from Monsanto’s perspective.
You see, for two decades, the company turned its back on its century-long history as a chemicals company.
Instead, Monsanto focused on being an agricultural/life-sciences business, with an emphasis on genetically modified crop seeds. Last year, two-thirds of Monsanto’s sales came from selling GMO seeds and licensing plant genetics to other companies.
But now, with growing resistance to GMO crops around the world, the company is again having to reconsider its identity.
In 2014, sales grew at a rate of only 4.7%. That is well down from the 8.7% rate the company had in 2013, and the average rate of 21.3% over the previous five years.
Thus, Monsanto’s management is hoping to go relive the past with its proposal to Syngenta, and jump back into the chemicals business. Last year, Syngenta generated about three-fourths of its $15-billion annual sales from herbicides, fungicides, and other crop-protection chemicals.
Syngenta would also fill another gap for Monsanto, as it has a very strong hold in emerging markets. In fact, over 50% of its sales come from these fast-growing markets.
