Monsanto/Syngenta: matter of life and death

Life wants to buy death. Death is not interested. Monsanto, the US crop chemicals company, specialises in seeds for the world's farmers. Its Swiss rival Syngenta sells stuff that kills the weeds and pests that destroy crops. On Friday, the latter formally rejected a cash-and-shares bid from the former.

Monsanto has 26 per cent of the global crop seeds market. Adding number three Syngenta would take that portion to over a third. Meanwhile Syngenta has nearly a fifth of the market for pesticides and fungicides. Monsanto could do with that - its own chemicals business depends on its Round-up brand, a weed killer that has lost patent protection. The combined company would have 27 per cent of the crop chemicals market.

Syngenta would also give Monsanto more exposure to Asia and Europe - at the moment the US group generates nearly 80 per cent of its sales from the Americas. Syngenta makes half its sales in other regions. And Bernstein even thinks that a post-deal rebranding exercise could help Monsanto solve its image problem (if adding more pesticide improves your image, something has gone very badly wrong, but never mind).

Competition authorities might object on the grounds that the new company's seed business would be very large, especially in corn. Together the companies could have 40 per cent of that crop. Liberum thinks Monsanto would need to sell Syngenta's seeds divisions. Monsanto would also need to convince its shareholders that adding Syngenta's slower profits growth will not dilute the group's own earnings.

Syngenta says the bid is more than half in shares. Even so, with reasonable cost reduction targets of say $500m, it should be accretive to Monsanto's earnings per share, even without accounting for Syngenta's lower tax rate. Leverage will rise, but not onerously. If Monsanto can put to rest concerns about Syngenta's relatively low growth, combining life and death could make sense.

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