Antitrust regulatory concern
The acquisition of Syngenta (SYT) by Monsanto (MON) involves two of the world’s leading companies in the agricultural chemical industry. Therefore, the acquisition would definitely attract the attention of antitrust regulators. Antitrust regulators generally look at the competitive issues in the country. According to the Wall Street Journal, the United States and the European Union won’t block the deal, but they could put certain limitations to clear the deal. Monsanto and Syngenta have different agricultural chemical products with a different regional sales breakup. However, Monsanto may have to divest some overlapped businesses (see the graph below) along with other condition of the antitrust.
Previously, Syngenta rejected the $46 billion takeover bid of Monsanto, citing a lower valuation along other reasons. Now, Syngenta has initiated the deal negotiation with chemical players, including Monsanto. Currently, Syngenta has softened its position on Monsanto and is ready to negotiate.
Syngenta’s chairperson said that the company is negotiating with ChemsChina too. Monsanto has an advantage over ChemsChina as the former has a leading position in the global agricultural chemical market, along with a healthy balance sheet.
According to antitrust lawyers, the merger between Dow Chemical (DOW) and DuPont (DD) is likely to be cleared by antitrust regulators if the two agree to divest a couple of their overlapped businesses. The Monsanto and Syngenta deal would also be cleared by antitrust regulators, with a few conditions. It’s not currently known if Monsanto will stick to a $46 billion offer or not. However, the deal seems likely due to the merger between Dow and DuPont, not to mention the immense pressure from shareholders.
Investors could consider chemical ETFs such as the Materials Select Sector SPDR (XLB) and the iShares US Basic Materials ETF (IYM) to get exposure to the chemical industry. Monsanto forms around 8% of XLB’s as well as IYM’s holdings.