Monsanto leaves Syngenta facing awkward questions

Monsanto leaves Syngenta facing awkward questions
                   
                         

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Monsanto’s abandonment of Syngenta may turn out to be the best thing for both sides. The world’s largest seed maker has given up its $46 billion pursuit of the Swiss agricultural chemical group. Syngenta’s management must now show why its reluctance to entertain the offer was well founded.

Monsanto shareholders have reason to be glad of Syngenta’s rejection. The 470 Swiss franc per share offer in stock and cash would have been a 50 percent premium to Syngenta’s undisturbed share price, and worth about $15.3 billion. A Breakingviews estimate suggested that savings from reducing costs and cutting taxes were worth no more than that.

For Monsanto Chairman and Chief Executive Hugh Grant, walking away shows discipline. If Syngenta’s management remained aloof, he risked getting tied up in an expensive hostile battle, no easy feat for a global, tax-based deal in a complex sector. And the merger itself would have been a headache, involving breaking up Syngenta and relocating Monsanto in order to get the benefits of a lower tax rate.

The jump in Monsanto’s share price suggests its own shareholders are relieved to be rid of the affair. Still, having doggedly pursued Syngenta for years, Grant has left the door open for a later tilt: the company says it won’t pursue the current combination, without ruling out a tweaked one.

Syngenta’s Chief Executive Michael Mack also deserves some slack. Getting antitrust approval for a merger could have dragged on for years. Yet his alternative plan for heady margin expansion is uncertain. He may yet be tempted into other tie-ups, such as a merger with Dow Chemical’s AgroSciences division.

Bankers may mourn the loss of a mega-merger, particularly after the high-profile flops of Pfizer’s bid for AstraZeneca and AbbVie’s for Shire last year. If Mack can’t show his intransigence will deliver value, they may just get another bite of the cherry.