Syngenta Defends Sale Bid

OMAHA (DTN) -- Syngenta Corp. on Thursday defended its plan to be taken over by ChemChina following a push by U.S. senators to demand heavier scrutiny of the way the merger would affect U.S. national security and agricultural production.

Four members of the Senate Agriculture Committee wrote Treasury Secretary Jack Lew on Thursday asking him to ensure the U.S. Department of Agriculture and the Food and Drug Administration both play a formal role in examining the various potential effects of the ChemChina-Syngenta deal under the auspice of the Committee on Foreign Investments in the United States, or CFIUS.

The Chinese National Chemical Corp, or ChemChina, announced in early February it was buying Switzerland-based Syngenta for $43 billion, making it the largest purchase of a foreign company by a Chinese firm.

The CFIUS is made up of 32 different federal agencies that review foreign purchases that could affect U.S. security. These issues usually involve access to technology, military contracts, installations or other sensitive information. In general, agriculture isn't part of the CFIUS mandate. Also, USDA and FDA are not among the agencies generally included in a CFIUS review, nor are they mentioned in the law or rules that govern the committee.

When the ChemChina-Syngenta deal was announced, Syngenta executives said the two companies would voluntarily submit materials to CFIUS for review. In a statement, Syngenta executives said they welcome a full review of the transaction by the U.S. government and would work with all agencies as the process moves ahead.

"We believe the proposed combination with ChemChina is good for farmers and customers in the U.S. and all over the world," Syngenta stated. "This transaction is crucial to maintaining choice and competition because it enables us to continue as a leading innovator in seeds, traits and crop protection products, which will preserve the safety, reliability and diversity of the global food supply. We do not believe the proposed transaction raises any food safety or significant national security issues. Syngenta will remain Syngenta. It will retain its broad portfolio of businesses and geographic presence. In the U.S., nothing will change for farmers or customers. Any product commercialized in the U.S. will still be required to meet our own high standards as well as pass all applicable EPA, FDA and USDA health and safety review processes."

USDA has declined to comment to DTN about any role the department might play in the CFIUS process and declined Thursday to discuss the senators' letter. The Department of Treasury did not respond to an inquiry from DTN regarding the senators' request.

Syngenta's board of directors has voted unanimously to support the sale to ChemChina. Syngenta shareholders will meet in late April to vote on the deal, which is likely to draw little shareholder resistance given that more than 87% of Syngenta stock is held by institutional investors that will be getting a premium for their shares under the sale.

Syngenta also sent along an independent analysis of the ChemChina deal by Bernstein Research stating that the research firm believes CFIUS is already reviewing the deal with the help of USDA and anticipates approval of the transaction in late May or June. Regarding concerns expressed by senators and others, Bernstein's analysis did not think they would have an impact on the deal, but they acknowledged that "we feel politics will continue to be the biggest risk."

In their letter to Lew, the senators highlighted some of these issues and expressed concern about the lack of agricultural and food security issues in the CFIUS process. The senators said it was "imperative" that USDA and FDA be included in the committee review of the Syngenta sale to review "critical American assets, including agricultural assets."

The senators added that while the Senate Agriculture Committee has not drawn any conclusions about the sale, "we believe that any foreign acquisition of an important U.S. agricultural asset should be reviewed closely for potential risks to our food system," the senators wrote. "It is not unreasonable to suggest that shifts in company governance; operational strategy; or financial health -- particularly in light of the magnitude of this leveraged transaction -- could have consequences for food security, food safety, biosecurity, and the highly competitive U.S. farm sector as a whole."

Senators added that the risks are greater because of the role ChemChina has as at least a partly owned entity of the Chinese government. The senators suggested "nonmarket behavior due to state ownership could lead to inconsistent or seemingly arbitrary treatment of U.S. farm productions in key export markets," the letter noted.

Senators joining the letter included Sen. Charles Grassley, R-Iowa, who had raised concerns earlier in the week about the effect of the Syngenta sale on seed and chemical competition. He was joined on the letter by Agriculture Committee Ranking Member Debbie Stabenow, D-Minn.; Sherrod Brown, D-Ohio; and Joni Ernst, R-Iowa.

The U.S. accounts for roughly 25% of Syngenta's overall sales, but the company also has a research and development facility in North Carolina, as well as chemical crop protection manufacturing locations in Louisiana, Nebraska and Texas. Syngenta also has seed facilities in several states, including Iowa, Minnesota and Nebraska.

The Bernstein analysis also addressed concerns about China's regulatory process regarding genetically engineered crops and grains. The analysis indicated China will need to give assurance about timely approval of traits. There has been some movement in this area already as Chinese officials have cracked down on illegal planting of biotech crops and also recently approved Monsanto's Roundup Ready 2 Xtend product for import. Bernstein noted, "It would be truly ironic if the deal is scuppered because China won't approve traits in a timely manner when Syngenta themselves have been victims of delayed approval."

Syngenta still faces a legal battle after developing MIR 162 genetic traits marketed under the brand name Viptera and in Viptera/Duracade stacks. USDA deregulated the products in 2013 and Syngenta moved ahead to commercially sell the seeds, even though MIR 162 had not been approved in China. In November 2013, China began rejecting any U.S. corn exports that tested positive for MIR 162. That went on until China eventually approved the MIR 162 trait last December.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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