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).

Why Does Monsanto See Its Future in a Deal with Syngenta?

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.

Latest articles

23 Jul

Google Ups the Ante for Ad Targeting

WRITTEN BY Ruchi Gupta

Google has announced that it's going to start adding third-party ad targeting and browser privacy restrictions to Google Chrome.

23 Jul

Will Fortinet Beat Q2 Earnings Estimates?

WRITTEN BY Aditya Raghunath

Leading cybersecurity company Fortinet (FTNT) is scheduled to announce its second-quarter earnings results on August 1. What should we expect?

Harley-Davidson’s Q2 earnings were slightly better than estimates.

Netflix (NFLX) has long relied on international markets to drive its streaming video business growth.

23 Jul

Could Ford’s Q2 Earnings Push Its Stock Even Higher?

WRITTEN BY Mohit Oberoi, CFA

Ford's second-quarter earnings results are scheduled for release on July 24. So far, Ford stock has outperformed its legacy peers.

23 Jul

Why RBC Isn't Optimistic about BlackBerry Stock

WRITTEN BY Aditya Raghunath

Shares of BlackBerry (BB) have been volatile over the last 12 months. BlackBerry stock fell 40.5% from $12.0 in September 2018 to $6.57 in December.