Monsanto’s financial performance
Monsanto (MON) has been looking for an M&A (mergers and acquisitions) deal as the company has been under immense pressure from its shareholders to improve business prospects and financial performance. The 2015 financial year has been poor for Monsanto as it faced several headwinds. The company underperformed due to lower crop prices, regulatory concerns, and currency headwinds. Crop prices are the key sales and earnings drivers for agricultural chemical companies like Monsanto, Syngenta (SYT), DuPont (DD), and Dow Chemical (DOW).
Corn and soybean prices significantly affect the sales of Monsanto as they are the major contributor to MON’s sales. In 2015, corn and soybean prices fell drastically and impacted the financial performance of the company. Overall, Monsanto’s sales fell 5% while its net income fell sharply by 16% in 2015.
However, the merger between Dow Chemical (DOW) and DuPont (DD) triggered consolidation in the agricultural chemical industry. To increase competitiveness and business performance, Monsanto has shown an interest in acquiring the European agricultural chemical giant Syngenta. Syngenta is the world’s largest crop protection player.
Why Syngenta rejected Monsanto’s bid earlier
Syngenta was also under pressure from its shareholders due to its poor financial performance. Syngenta said that it’s difficult to go alone, and so it’s eagerly looking for M&A deals. Despite the strong desire for a deal, the company rejected Monsanto’s bid. This was due to the following:
- Syngenta was looking for a higher valuation than Monsanto’s takeover bid of $46 billion in August
- integration and execution risk
- weak crop prices and commodity market, as Potash Corporation (POT) also withdrew its offer to acquire the European player K+S due to weakness in the commodities market
- antitrust regulatory risk
After rejecting Monsanto’s bid, Syngenta’s stock fell significantly. Later, the company faced criticism from its shareholders for not following the deal. As a result, Syngenta’s CEO at the time, Mike Mack, had to quit, and John Ramsay was appointed as the interim chief executive of Syngenta in October 2015.
The iShares US Basic Materials ETF (IYM) tracks the performance of US-based basic material companies. MON forms 7.7% of IYM’s total holdings.