What would be the potential legal implications of the Monsanto and Syngenta megamerger?

Overview of the Monsanto and Syngenta deal

Recently, Syngenta AG (SYT), the world's largest pesticide company, started talking about deals with global agrochemical players such as Monsanto (MON) and ChemsChina. Initially, Monsanto expressed its interest in acquiring Syngenta in May and announced a takeover bid of $46 billion in August. However, Syngenta declined Monsanto's offer primarily due to the lower valuation. Later, Monsanto withdrew its takeover bid.

On December 18, 2015, John Ramsay, the interim chief executive officer of Syngenta, said that Syngenta is seriously looking for a deal with the global agrochemical players including Monsanto. This is probably to enhance its market position in the agricultural chemical space to counter the recent merger between the two agrochemical giantsDow Chemical (DOW) and DuPont (DD).

n December 22, 2015, Syngenta's chairperson Michel Demare also said that the company is negotiating a deal with Monsanto and ChemsChina, but hasn't received the takeover bid yet. Wall Street reacted positively to this news and Monsanto's stock rose 3% while Syngenta's stock rose 7% since December 18, 2015.

About Monsanto

Monsanto is the world's leading agricultural chemical company with a presence in more than 150 countries. The company produces biotechnology seeds, herbicides, biotechnology traits, and precision agriculture products to improve farm yields and lower costs for farmers. The company has two product segments, namely Seeds and Genomics and Agricultural Productivity. It has reported total sales of $15 billion in 2015 with the total market capitalization of $43 billion as of December 29, 2015.

About Syngenta

Syngenta, a European company, is also one of the world's largest agriculture companies with a presence in 90 countries. Syngenta's products include crop protection, seeds, as well aslawn and garden products. Its major crop protection products are herbicides, insecticides, fungicides, and seed treatments. The lawn and garden business provides flower turf and landscape, as well as pest controlproducts. The company has generated total sales of $15 billion in 2014 with the total market capitalization of $37 billion as of December 29, 2015.

This isn't the only deal in the pipeline, as other major players are also involved in mergers and acquisitions deals. We'll discuss the industry consolidation in our next part before discussing the MON-SYT deal in detail. The Materials Select Sector SPDR (XLB) ETF, a major chemical ETF, primarily tracks the performance of major chemical players. MON forms 8% of XLB's total holdings.

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Why Has the Chemical Industry Started to Consolidate?

WRITTEN BYSTEVE ARIEL

Consolidation begins in the chemical industry

Recently, the global chemical industry has witnessed a few M&A (mergers and acquisitions) deals and started consolidating as the big chemical players were involved in the deals. Major deal talks started with Monsanto and Syngenta in May 2015 when Monsanto expressed its interest in acquiring Syngenta. Since then, the leading chemical players such as Dow Chemical (DOW), DuPont (DD), Monsanto (MON), BASF, Syngenta (SYT), Bayer, and Air Liquide have been looking to consolidate their position in their respective core industry segments.

Over the last few years, most of these big players were divesting their non-core assets and businesses to increase their focus on core competencies. This is due to the pressure from their shareholders and activist investors to improve business performance and overall shareholders returns. The chemical industry is highly sensitive to crude oil prices, currency fluctuation, crop prices, and overall economic prospects. These factors have impacted the sales and margins of most of the chemical players of late. This has started the consolidation phase along with focused investment across chemical segments.

Dow Chemical and DuPont merger

Dow Chemical (DOW) and DuPont (DD), two of the world's leading chemical companies, have announced that they will merge to form the world's largest chemical company by market capitalization. It will be an all-stock equal merger and is expected to be closed in the next 18 to 24 months. The newly merged company will be called DowDuPont. The market capitalization of the merged company was around $130 billion as of December 11, 2015.

Consolidation begins in the chemical industry

Recently, the global chemical industry has witnessed a few M&A (mergers and acquisitions) deals and started consolidating as the big chemical players were involved in the deals. Major deal talks started with Monsanto and Syngenta in May 2015 when Monsanto expressed its interest in acquiring Syngenta. Since then, the leading chemical players such as Dow Chemical (DOW), DuPont (DD), Monsanto (MON), BASF, Syngenta (SYT), Bayer, and Air Liquide have been looking to consolidate their position in their respective core industry segments.

Over the last few years, most of these big players were divesting their non-core assets and businesses to increase their focus on core competencies. This is due to the pressure from their shareholders and activist investors to improve business performance and overall shareholders returns. The chemical industry is highly sensitive to crude oil prices, currency fluctuation, crop prices, and overall economic prospects. These factors have impacted the sales and margins of most of the chemical players of late. This has started the consolidation phase along with focused investment across chemical segments.

Dow Chemical and DuPont merger

Dow Chemical (DOW) and DuPont (DD), two of the world's leading chemical companies, have announced that they will merge to form the world's largest chemical company by market capitalization. It will be an all-stock equal merger and is expected to be closed in the next 18 to 24 months. The newly merged company will be called DowDuPont. The market capitalization of the merged company was around $130 billion as of December 11, 2015.

Airgas and Air Liquide deal

The European industrial gas giant Air Liquide SA acquired the US-based industrial gas player Airgas (ARG) for $10.3 billion on November 17, 2015. Airgas produces industrial gases that are primarily used in manufacturing, healthcare,as well as food and beverages, among other areas. Air Liquide acquired Airgas to increase its global reach and balance its product portfolio. The combined market capital of these two companies is close to $50 billion.

Previously, Eastman Chemical (EMN) acquired Taminco for $2.8 billion in September 2014. Another deal was between Huntsman and Rockwood, at $1.1 billion in 2013.

The Materials Select Sector SPDR (XLB) ETF largely tracks the performance of major chemical players. Another ETF, the iShares US Basic Materials ETF (IYM), tracks the performance of the US-based basic material companies, including those involved in chemicals. DOW and DD form 22% of XLB's total holdings.