London | Reuters — Major investors in Swiss agrochemicals firm Syngenta are confident a deal with Monsanto will come off if the U.S. firm ups its initial US$45 billion bid by at least 10 per cent.
After rebuffing the takeover offer announced earlier Friday, Syngenta said the bid fundamentally undervalued the firm and that its suitor underestimated the risk of competition regulations challenging a deal.
The offer, which values the firm at 449 Swiss francs a share (about C$583), a 36 per cent premium to Thursday’s closing price, would create a company with combined sales of more than US$31 billion.
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Despite the rejection, shares in Syngenta closed up 19.3 per cent at 396.90 Swiss francs.
The value of the cash-and-shares bid would need to rise before top investors would sign up, however.
“The price level is close to what we would consider a good valuation level but the mix incites us to apply a discount, mainly due to execution risk,” a top-20 investor in Syngenta said.
“A full cash offer at 450 francs or a 50-50 stock and cash offer at 500 francs would suit us at first sight. Of course we will deepen our analysis in the coming days to get a clearer view.”
The two biggest investors in Syngenta are asset managers BlackRock and Capital Research Global Investors, both with a combined stake across their various funds of around five per cent, Thomson Reuters data showed.
At a fund level, the biggest investor is U.S. hedge fund Harbor Capital Advisors, through its Harbor International Fund, which holds around a 2.7 per cent stake in the company, Thomson Reuters data showed.
Emailed requests for comment from fund managers at the two firms were not immediately answered.
Cedric Lecamp, senior investment manager at Pictet Asset Management, the 17th-biggest investor in Syngenta, said in emailed comments he also thought the price would need to rise.
“We think a deal gets done above 500 (francs). Good for our Pictet Agriculture fund shareholders near-term but being agricultural equity-focused investors, we would be losing a best-in-class investment opportunity in the longer term,” he said.
The Pictet Agriculture fund, up nearly 10 per cent year-to-date, holds nearly four per cent of its assets in Syngenta stock, making it the fund’s sixth-biggest investment, Thomson Reuters data showed.
Despite having some “unique” assets, the current management of Syngenta had “over-promised and under-delivered” and so a deal would be welcome, as long as the price got closer to 500 Swiss francs, a third top-20 investor said.
“On a two-to-three year view, we see a standalone valuation of around 450 (francs), so in effect they’re offering fair value for the company two years out. It fails to reflect any strategic premium or any synergies,” from cost cutting or the benefits of a lower tax bill should Monsanto move its headquarters to Switzerland, the investor said.
An overlap in the shareholder register of both companies of around 30 per cent should help a deal to be struck, and regulatory issues should be surmountable, although there would need to be a “sizeable” break fee, he added.
The wildcard could be a competing offer, he said, citing Dupont, Dow Chemical or a coalition of Bayer, BASF or possible Asian competitors, but either way, the offer on the table would need to rise.
“If we get an extra 50 Swiss francs a share, or something in that ballpark, we’d be happy to help support the board in completing such a process,” he added.
— Simon Jessop is Reuters’ chief European funds correspondent in London. Additional reporting for Reuters by Sinead Cruise.
