The Committee on Foreign Investment in the United States (CFIUS), the high-level national security panel out of the Treasury Dept., has given the go-ahead to China National Chemical Corp.’s (ChemChina) $43 billion purchase of the Swiss seed-and-pesticide firm Syngenta.
The proposed takeover still must get clearance elsewhere — most notably an antitrust review by the European Union — but the ruling “removed one of the biggest potential challenges to the deal, as the interagency body had previously proved to be an obstacle for cross-border agreements involving Chinese companies,” writes Chad Bray for the New York Times.
In a joint news release yesterday, the companies said that they are “working closely with the regulatory agencies involved [elsewhere] and discussions remain constructive.” They expect the deal to close by the end of the year.
“If completed, the deal would be the biggest foreign acquisition to date by a Chinese company. Shares in Syngenta jumped over 11% to 423 Swiss francs on Monday's news of the security clearance,” the AP reports.
“ChemChina and Syngenta didn’t disclose the details of the agreement with CFIUS, with the Swiss company adding in an e-mailed response that ‘any mitigation measures are not material to Syngenta’s business,’” reports Bloomberg’s David McLaughlin.
“The decision indicates that potential worries about the long-term security of the American agricultural industry resonate far less than immediate concerns over foreign ownership of technology and cybersecurity assets, according to lawyers who work on foreign-driven merger deals,” observe the Wall Street Journal’s Jacob Bunge, Brian Spegele and William Mauldin.
“They’ve not yet reached the point where they have found an acquisition in the food and agriculture sector to threaten national security,” Squire Patton Boggs partner Stephen McHale tells them, adding that CFIUS’s rulings “reflect a view that the U.S. is ‘very secure in its food supply.’”
Syngenta supplies about one-fifth of the world’s pesticides and about 10% of soybean seeds to U.S. farmers, and it generates about one-quarter of its sales from North America.
“The deal has come as other major players in the agrochemical and seeds industry plan to merge, or are holding talks together. Dow Chemical Co. is combining with DuPont Co., and Bayer AG is targeting genetically modified seeds maker Monsanto Co. Only BASF SE has remained on the sidelines of the consolidation wave,” writes Bloomberg’s McLaughlin.
“On both sides of the Atlantic, worries have risen over a spate of mergers and acquisitions,” write Ralph Atkins and Don Weinland for Financial Times. “Brussels last month launched an investigation into whether a planned $130 billion merger between U.S. chemicals groups Dow Chemical and DuPont would limit competition for vital supplies to Europe’s farmers.”
And Reuters’ Michael Shields and Greg Roumeliotis remind us that several U.S. lawmakers wrote to Treasury Secretary Jack Lew this year asking for CFIUS to subject the deal to additional scrutiny over its impact on domestic food security.
“It’s clear that China is looking at purchasing companies with food production expertise as part of a long-term strategic plan and a component of their national security. … The fact that a state-owned enterprise may have yet another stake in U.S. agriculture is alarming,” said Chuck Grassley (R-Iowa), chairman of the Senate Judiciary Committee. He also called for the U.S. Department of Agriculture, which joined the CFIUS review, to be permanently added to the committee.
As controversial as the deal may be in some quarters in the West, it has “arguably been more controversial in China: Syngenta has pioneered the manufacture of genetically modified (GMO) crops, and ChemChina’s interest is seen as spurred by the Beijing government eyeing Syngenta’s valuable GMO-seed patents,” writes Charlie Campbell for Time.
“However, the Chinese public remains vehemently against GMO. A recent survey in the state-backed China Daily revealed 84% of respondents consider GMO unsafe. It remains illegal for locally grown food.”
But given that GMOs could “solve many of [China’s] agricultural problems,” it is doing what we call marketing in the West. “The Chinese government has launched a massive propaganda offensive to change this,” writes Campbell.