Executives defending mergers
Over the past two weeks, the market saw the agricultural chemical industry moving toward further consolidation. On Tuesday, September 20, executives of major agricultural companies (MOO) such as Monsanto (MON), Bayer, Syngenta (SYT), Dow Chemical (DOW), and DuPont (DD) testified in defense of these mergers to US lawmakers.
Once the above companies merge, the major market participants in the seed and pesticide business will shrink from six to four. The lawmakers are particularly concerned about this kind of concentration. According to them, such a concentration will limit farmers’ choices and exploit the pricing power.
When we plot the returns of the companies from the date of their respective merger announcements to September 23, 2016, we can see that only one company—Syngenta (SYT)—has a positive return of 9%.
Dow Chemical (DOW) and DuPont (DD) announced a merger in December 2015, and both companies are down 1% and 5%, respectively. After the more recent merger announcement made by Monsanto (MON), PotashCorp (POT), and Agrium (AGU), all fell 2%, 4%, and 1%, respectively.
What we will cover
While the market assesses these mergers, we’ll look at analysts’ recommendations and price targets for some of the companies in the agribusiness space. This also includes CF Industries (CF), which produces nitrogen fertilizers. We will begin with Monsanto.