Why Everyone Wants Syngenta
No question about it: during the month of May, the Swiss agribusiness giant Syngenta had to have been the prettiest girl at the dance, since everyone and their brother wanted to tango with them. Syngenta (SYT on the New York Stock Exchange, trading for $88.33 a share) had a white-hot month, rising nearly fifty percent in value over the course of just 30 days as rumors of the company's merger sent speculation off the tracks. Suitors like Monsanto (MON on the New York Stock Exchange, trading for $113.80 a share) have tried to wow this blushing beauty with offers as high as fifty billion dollars, only to have the company turn cheek and hold out for a better offer. With Syngenta trading at by far their best value in the company's history, investors should ask whether there's still room to grow or whether the growth has tapped out.
Mega Mergers, Modified
Unless you're a corn farmer in the class-action suit against Syngenta's genetically-modified stock, you've likely been out of the loop of the company's performance of late. 2014 proved a poor year for the Swiss giant as litigation efforts limited their growth in the United States, crimping the $15 billion in company sales and forcing the company to look into expanding on emerging markets. Even with a not-great 2014 under their belt, Syngenta remains the very largest crop chemical company in the world and the third-largest seed producer overall behind only behemoths Monsanto and Dupont. Between pesticide, herbicide, and seeds, there's ample reason for a number of bigger fish to be interested in snapping up Syngenta. Yet like many other things, the Swiss remain decidedly neutral about the prospect. Word from inside the Syngenta board room reports that the company's directors fear the regulatory issues that come hand in hand with a mega merger; after a preliminary deal that would sell 45% of company value for cold hard cash, the US Treasury Department labeled it a tax inversion. Not to be outdone, the Swiss government insisted the deal be done primarily in cash in order to make the deal kosher for a redomicile in Switzerland. Monsanto has added a two billion (that's billion, with a B) reverse breakup fee in the event that antitrust lawyers decide that the deal needs to be torn down. It's quite clear that everyone on the outside wants one deal or another to be done -- but what about Syngenta themselves?
Playing The Market?
In the world of investment, much like the world of pop culture, there's no such thing as bad publicity. As unhappy as some investors may be with a merger between Syngenta and a larger bio-agriculture firm, you can be certain that shareholders of the company's stock can be found dancing in the streets. Anyone who invested a mere one thousand dollars in Syngenta on April 30th could have come away with $500 in pure profit from the move come May 30th. The stock's current listing price isn't just a 52-week high, it's the highest that the it's ever been in a decade and a half of trading on public markets. The current volume of a million and a half shares, furthermore, sits far above the average volume of just over one million shares. Syngenta represents an addictive substance for investors, a cat-nip that nobody can get enough of in the sudden craze. It's worth asking whether or not the board of directors have decided to make waves just for the sake of making waves, or for the sake of bolstering the company's image. Although Syngenta has sterling A2/P1 credit from Moody's, this hasn't always been the case. In fact, at the end of February the credit-rating firm gave the Swiss company negative ratings. While a merger would send stock prices higher still, the company may choose not to enact a merger at all if they believe their value come Q3 sits higher than the proposals set forth by a number of interested parties.
Horses In The Race
Monsanto represents the very biggest and very richest suitor competing for Syngenta's lovely hand in merger-marriage. While they have the assets to get it done -- including paying what must surely be an ungodly billing fee to Morgan Stanley for an appraisal of the company's assets -- they're not certain to get the job done. Both Dow Chemicals (DOW on the New York Stock Exchange, trading for $52.06 per share) and DuPont (DD on the New York Stock Exchange, trading for $69.08 a share) have tossed their hats into the ring even if they're not eager to find themselves in a three-way bidding war between competitors with billions in assets on their hands. Dow's interest lies in the seed market, of which they own a mere six percent; DuPont has eyes for Syngenta's array of weed- and insect-killers. Monsanto, of course, wants it all, and may even sell off patents for their own weed-killers in order to push the deal through the antitrust courts. The bidding grows and grows without cease: as of the day of this writing, Monsanto has offered a 45% premium on Syngenta's stock price, offering nearly $500 per share. Syngenta, more than willing to play the long game, refused.
Getting In, Or Getting Out?
You can eyeball the risk tolerance of your portfolio by whether you're willing to invest in Syngenta before a merger occurs. With a 1.00 beta threshold, the stock itself doesn't represent that great of a risk, but the volatility of a sale in the near future certainly contributes. The Swiss will likely continue to ratchet up the price tag on their company, but if they shoot too high they may find themselves without a partner willing to cough up enough assets -- a disaster for those who hold their publicly-traded debt. While most investors likely missed the company's surging May performance, a strong June remains well in reach. Those who prefer steady long-term growth should look elsewhere -- such as the steady companies looking to snap up Syngenta.