UPDATE 4-Syngenta shares jump on report of Monsanto takeover talks

Tue Jun 24, 2014 2:30pm EDT

* Syngenta declines to comment on report of Monsanto talks

* Shares rise nearly 6 percent, biggest gainers on pan-European index (Adds Dow comment)

By Katharina Bart

ZURICH, June 24 (Reuters) - Syngenta's shares jumped on Tuesday after a media report that the Swiss crop chemical maker had been in talks about a $40 billion takeover by U.S. rival Monsanto Co to create the world's largest agrochemical company.

Monsanto, the world's largest seed company, and Syngenta had held preliminary talks about combining, partly to allow the U.S. company to benefit from lower Swiss holding taxes, according to a report from Bloomberg. The talks were later abandoned, the report said.

A Syngenta spokesman declined to comment on the report. Monsanto spokesman Lee Quarles said the company did not comment on "rumors and speculation," and had nothing to say about the reported talks.

Syngenta shares closed 5.7 percent higher at 345.8 Swiss francs ($390), the biggest gainer on the pan-European FTSEurofirst 300 index.

Monsanto shares were down 0.7 percent at $121.26 in afternoon trade on the New York Stock Exchange.

Analysts are expecting more deals in the sector as larger players like Monsanto, Bayer and BASF look to bulk up and broaden their reach in crop protection and seeds.

In April, Chemtura Corp agreed to sell its agrochemical business to rival Platform Specialty Products Corp for about $1 billion.

And Denmark's Auriga Industries, which controls Danish crop-chemical maker Cheminova, said on June 13 that it was reviewing strategic options.

Companies in Asia are also looking for more expertise in agrochemicals and seeds, in part due to governments such as China's wanting to increase domestic production and safeguard food security.

The reported talks with Monsanto put pressure on Syngenta Chief Executive Officer Mike Mack to bolster the company's performance and to give money back to shareholders, said several analysts, including those at Deutsche Bank and MainFirst.

"This steadily increasing M&A story plus the activism theme we are seeing in U.S. chemicals mean that management teams in Europe are under more pressure to improve balance sheet efficiency and/or share prices," said Deutsche Bank analyst Virginie Boucher-Ferte. She rates the stock a "buy" with a 400-franc target price.

A number of chemical companies in the United States, including DuPont and Dow Chemical Co, have come under investor pressure to separate less stable businesses and increase shareholder returns.

"Dow Chemicals' agro segment might also be available as management is under pressure to increase shareholder value," analysts at German brokerage MainFirst wrote in a note to clients.

Dow AgroSciences spokeswoman Kenda Resler Friend said there are no such near-term plans to divest the agricultural unit.

"The business is delivering on its significant technology investments and meeting farmer needs for increased productivity, and continues to outperform the industry under Dow's ownership," she said.

DuPont officials were not immediately available for comment.

Deutsche Bank said this shareholder activism was likely to spread to Europe, raising the stakes for Syngenta and peers such as Germany's BASF.

Syngenta's shares have lagged those of European rivals, falling 1.2 percent over the past year compared with a nearly 21 percent rise in the European chemicals sector.

The company is aiming to increase cost cuts to $1 billion a year by 2018 after disappointing investors with an 11 percent fall in 2013 profit.

CEO Mack has changed Syngenta's sales model so that a single account manager sells farmers everything from seeds and pesticides to fertilisers and support services, and he aims to boost sales to $25 billion by 2025 from $14.69 billion in 2013.

TAX TREATMENT

The tax aspect of Monsanto's potential deal with Syngenta appears to have been similar to that of U.S. drugmaker Pfizer's failed attempt to buy rival AstraZeneca for nearly 70 billion pounds ($119.06 billion) last month.

That deal would have allowed Pfizer to reincorporate in Britain and pay a significantly lower corporate tax. The U.S. company would also have been able to use tens of billions of dollars it has parked overseas, avoiding high U.S. taxes for repatriating the huge cash pile.

While Switzerland has long competed against its European neighbours to attract big corporations, it has recently moved toward more cooperation with the European Union after disagreements over corporate taxation have strained relations with the bloc for almost a decade.

Last week, Switzerland said it would abolish some corporate tax regimes, such as different treatment of domestic and foreign revenues. ($1 = 0.5880 British pounds) ($1 = 0.8950 Swiss francs) (Reporting by Katharina Bart; Additional reporting by Alice Baghdjian, Rupert Pretterklieber and Carey Gillam; Editing by Erica Billingham, Lisa Von Ahn and Jonathan Oatis)

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