August 22, 2016

The Committee on Foreign Investment in the United States (CFIUS) has granted approval for the $43 billion takeover of Syngenta by ChemChina.

In February of this year, state-owned ChemChina made a $43 billion cash bid for the agri-inputs giant, translating to $465 per share. If the transaction is completed as scheduled by the end of this year, it would be the largest-ever foreign purchase by a Chinese company.

At the time of the bid, Syngenta CEO, John Ramsey, told Reuters that he didn’t foresee approval from CFIUS being a challenge because there is limited overlap, saying, “I think the overall regulatory approvals will not be very challenging.”

Born from the merging of Novartis and AstraZeneca in November 2000, Switzerland-based Syngenta is one of the largest producers of agri-chemicals and seeds in the world, with a presence in more than 90 countries and 2015 sales totaling $13.4 billion, of which 27 percent was generated in North America, according to the New York Times.

Although the deal still requires approval from major EU regulatory bodies, CFIUS approval crosses a major hurdle for the companies, which did not disclose if any concessions were made to gain the approval.

“We are not disclosing the details of the agreement with CFIUS to respect the confidentiality of the process,” a Syngenta spokesman told Reuters by email. “Any mitigation measures are not material to Syngenta’s business.”

More than just representing the largest potential takeover for a Chinese company, the acquisition of Syngenta will also give China a huge bank of intellectual property that will be key for developing strategies for meeting domestic food security in the coming years.

“This is a very important step for ChemChina,” said the deputy secretary-general of the state-backed China Petroleum and Chemical Industry Federation, Pang Guanglian, reports the Wall Street Journal. However, despite the U.S. regulatory approval, there is still a level of unease in some quarters about a Chinese company buying such a large share of the U.S. agricultural market.

“Because the food and agriculture sectors are part of the nation’s critical infrastructure this merger raises questions about the potential national security implications,” Chuck Grassley, Republican chair of the Senate Judiciary Committee told an Iowa radio station, according to the Financial Times.

EU Approval Process

Guanglian also told the Wall Street Journal that “The likelihood that the European Union will pass this is huge.” However, such optimism may be slightly misplaced and the expectation by both companies that the deal will likely close by the end of the year could be premature due to EU regulatory procedures.

Historically, EU antitrust bodies will conduct due diligence that will include other Chinese state-owned agri-chemical companies that would fall under the umbrella of ChemChina, and if the consideration creates a wider-reaching entity, it could affect approval for the deal due to greater overlap.

“You could have a fight over the company analysis because it’s not always clear how much control the Chinese state has over a particular company and whether the state coordinates that company’s activities with the other Chinese players in the sector,” David Anderson, a Brussels-based antitrust partner at Berwin Leighton Paisner LLP told the Wall Street Journal.

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Lynda Kiernan