Monsanto struggling to engage Syngenta in deal talks

Date:01-07-2016

Monsanto Co. ’s top executive said the seed giant is struggling in its efforts to engage rival Syngenta AG in deal talks—despite statements last month by his counterpart that the Swiss company was open to discussing a sale.

Monsanto Chief Executive Hugh Grant said a deepening decline in the agricultural industry has strengthened the rationale for combining Monsanto, the world’s largest seed company by sales, and Syngenta, the top seller of pesticides, but “we haven’t seen much progress on that front.”

"I’d say that engagement has been difficult,” Mr. Grant told analysts on a conference call discussing Monsanto’s fiscal first-quarter results on Wednesday.

A spokesman for Syngenta declined to comment.

Seed and pesticide makers, buffeted by a three-year decline in major crop prices that has forced farmers to scale back spending on farm supplies, are pursuing deals as a way to continue growing and cut expenses. The group of so-called Big Six seed and chemical companies already is set to shrink after DuPont Co. and Dow Chemical Co. in December struck a deal to merge and then separate into three companies, one of which will become the world’s largest combined seed and pesticide company by revenue.

Monsanto on Wednesday said brisker sales of soybeans to South American farmers and fast progress on previously outlined cost-reduction plans helped it report a smaller-than-expected first-quarter loss. But the St. Louis company said it would cut another 1,000 jobs, after unveiling plans in October to eliminate 2,600 positions, as the company continues to struggle against punishing currency swings and commodity-price drops.

“Currency has become a much stronger headwind with the recent events in Argentina,” said Mr. Grant, referring to the country’s move in December to devalue its currency.

Monsanto reported that revenue slid 23% in the quarter ended Nov. 30 from a year earlier as corn sales weakened. For the year ending in August, the crop-biotechnology company said it expects to come in at the low end of its adjusted-earnings guidance of $5.10 to $5.60 a share, citing the currency devaluation in Argentina. Shares slipped 1.6% to $95.21 on Wednesday.

Monsanto earlier in 2015 failed to woo Syngenta’s board into formal deal talks with a $46 billion takeover pitch, leaving some Syngenta investors fuming after Monsanto dropped the pursuit in August.

Former Syngenta CEO Michael Mack departed in October and Syngenta’s interim CEO, Chief Financial Officer John Ramsay, said in an interview last month that the company was discussing possible deals with “a number of parties” and signaled new openness to discussing a deal with Monsanto.

Mr. Grant didn’t elaborate on the difficulty in engaging Syngenta. He said Monsanto’s pipeline of crop genes, high-performing seeds and new computer-powered farming services make the company a prime partner for merger deals and that Monsanto still believes in the “significant opportunity” that would come from integrating Syngenta’s pesticide portfolio.

The DowDuPont merger, which will combine two of Monsanto’s largest competitors, won’t likely change the companies’ status as major licensees of Monsanto’s crop gene technology, Mr. Grant said.

He added that the scale of the deal would pose operational challenges for the companies. “There’s clearly going to be a disruption while you bring two entities of this size together,” he said.

For its fiscal first quarter, Monsanto swung to a loss of $253 million, or 56 cents a share, from a year-earlier profit of $243 million, or 50 cents a share. Excluding restructuring charges and other items, the per-share loss was 11 cents. Monsanto forecast an adjusted loss of 23 cents to 33 cents a share.

Revenue slid 23% to $2.22 billion, while analysts forecast sales of $2.39 billion, according to Thomson Reuters.

Corn sales—Monsanto’s biggest source of profit—fell 20% to $745 million. Soybean sales grew 11% to $438 million. U.S. farmers have dedicated more fields to soybeans in pursuit of higher profits, and Monsanto has rolled out new soybean seed varieties in North and South America.

Sales in the company’s agricultural productivity segment, which includes its Roundup weed killer, fell to $820 million from $1.25 billion a year earlier.

Though the currency devaluation move by Argentina—a major South American market for Monsanto—will boost its agricultural sector over the long-term, Mr. Grant said, it will push Monsanto’s 2016 profits to the lower end of the company’s projected range. The company also anticipates recording $1.1 billion to $1.2 billion in restructuring charges, up from $850 million to $900 million previously forecast.