February 3, 2016

In what would be the largest ever foreign purchase by a Chinese company, ChemChina has officially made a bid of $43 billion for Syngenta AG. The cash offer, which was endorsed by the Syngenta board, translates to $465 per share, or approximately 20% above the stock’s last close, according to Bloomberg.

Under the conditions of the deal which is scheduled to close by the end of the year, a special dividend of five Swiss francs will be paid upon closing, and ChemChina will retain Syngenta’s management team, with ChemChina Chairman, Ren Jianxin leading a 10-person board including four Syngenta members. In addition, a deal breakup fee for ChemChina of approximately $3 billion and for Syngenta of approximately $1.5 billion was included. ChemChina will also study the possibility of an initial public offering for the company “in the years to come.”

Syngenta CEO, John Ramsay, told Retuers that he didn't envision any major challenges to the deal’s completion, saying that ChemChina has secured financing from a collection of Chinese sources along with HSBC and China CITIC Bank International, adding that The Committee on Foreign Investment in the United States (CFIUS), which will analyze if the deal poses a threat to American food security, will not pose a roadblock, due to limited overlap saying,  “I think the overall regulatory approvals will not be very challenging.”

Home to 21% of the world’s population, but only 9% of its arable agricultural land, China is being driven by the expansion of its middle class, a limited arable land base, and challenges regarding pollution to look overseas for food security solutions. Despite being the second biggest corn producing country in the world, yields in China are 44% below those in the U.S., according to U.S. Department of Agriculture data, reports Bloomberg.

"Only around 10 percent of Chinese farmland is efficient. This is more than just a company buying another. This is a government attempting to address a real problem," a source told Reuters.

As the world’s largest pesticide producer and owner of one of the largest seed portfolios containing 6,800 varieties, Syngenta will enable China’s agricultural sector to mitigate the effects of degraded farmland and polluted water supplies, and if the deal is completed, it will make ChemChina the world’s top supplier of agrochemicals.

Looking toward the future, Syngenta’s chairman, Michel Demare told Reuters that ChemChina will be seeking out more deals to further ensure China’s food security, stating, “ChemChina has a very ambitious vision of the industry in the future. Obviously it is very interested in securing food supply for 1.5 billion people and as a result knows that only technology can get them there.”