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Asia Connect / Treasury & Capital Markets
ChemChina-Syngenta EU nod to bolster Belt Road footprint
Michael Marray 1 Apr 2017

China National Chemical Corporation (ChemChina) has won EU approval for its US$43 billion takeover of Swiss agrochemical and seeds group Syngenta, clearing the way for the completion of the largest ever overseas acquisition by a Chinese company. ChemChina also received the approval from Mexico's competition authority on Monday.

The success at the EU Commission sets a precedent for Chinese firms in Europe, boosting confidence for future deals and extending the OBOR footprint in Europe. The win defies recent frustrations such as the probe into the China-Hungary high-speed rail deal and blocked takeover of German semiconductor manufacturing firm, Aixtron, last year.

Syngenta is the world number one provider of pesticides, and sells products such as crop seeds in more than 90 countries under such brand names as Apiro, Axial, Calaris and Callisto. These include many countries along the Belt Road in Central Asia, where cooperation with China in the agricultural sector is rapidly developing, and where China is providing advanced technologies on plantation and cultivation.

Syngenta is based in Basel, Switzerland, and was formed in 2000 by the merger of the Novartis agribusiness and Zeneca agrochemicals companies. But its global presence in seed and pesticide markets meant that the takeover had to be cleared both the US and EU authorities.

ChemChina is a state-owned enterprise, and is active in the agrochemical sector through its agrochemical company China National Agrochemical Corporation (CNAC). CNAC already controls a wholly owned subsidiary ADAMA Agricultural Solutions Ltd (Adama), an Israeli firm in which it initially acquired a 60% stake in 2011. Adama is primarily active in the manufacturing and/or distribution of off-patent formulated pesticides (including a wide range of herbicides, insecticides and fungicides, and seed treatment), plant growth regulators, and products for lawns and gardens.

On April 5 the European Commission said that a number of agreed asset sales had addressed its competition concerns.

A Commission statement said that ChemChina offered a set of commitments. In particular, they will divest a significant part of Adamas's existing pesticides business, notably: fungicides for cereals, fruits and oilseed rape; herbicides for cereals, corn, sunflower and vegetables; insecticides for cereals, corn, fruits, oilseed rape and vegetables; seed treatment products for cereals and sugar beet; some of Syngenta's pesticides, notably fungicides for vegetables and herbicides for cereals, vegetables and sunflowers. A line of products under development must also be divested.

"It is important for European farmers and ultimately consumers that there will be effective competition in pesticide markets after ChemChina's acquisition of Syngenta," European Competition Commissioner Margrethe Vestager said in a statement. "ChemChina has offered significant remedies, which fully address our competition concerns. This has allowed us to approve the transaction."

The Commission concluded that the divestment package will ensure that effective competition is preserved in pesticide and plant growth regulator markets. This is because in all product markets with problematic overlaps, ChemChina will divest either Adama's or Syngenta's product. The sale of Adama's products under development also ensures the viability and competitiveness of the divested business on a lasting basis. The buyer of the divested assets will be able to compete sustainably with the parties to the benefit of European farmers and consumers.

The Commission was in close contact with a number of other competition authorities, which have also been reviewing the transaction. In particular, the Commission has had regular exchanges with the competition authorities of Brazil, Canada, China, Mexico and the Committee on Foreign Investment in the United States. US clearance for the deal to proceed was also given last week.

The European Commission noted that the transaction is one of a number of proposed mergers in the agrochemical sector, and said that it examines each case on its own merits. In line with its case practice, the Commission assesses parallel transactions according to the so-called "priority rule" – first come, first served. The assessment of the merger between ChemChina and Syngenta has been conducted taking into account the merger between Dow and DuPont, which the Commission approved on March 27 2017.

As opposed to the Dow Dupont merger, the Commission did not find that competition for innovation in pesticides would be impacted by the combination of ChemChina and Syngenta. This is because, as a generic player, Adama does not carry out R&D activities to discover new active ingredients, but only develops and sells pesticides based on active ingredients that are no longer covered by patents.

M&A activity
Just as the Syngenta deal was finally getting all its approvals, a Chinese investor was making the first billion dollar takeover of the year in Germany, where M&A activity by Chinese firms has recently been politically controversial.

Beijing based Creat Group and subsidiary Creat Tiancheng Investment Holdings had its 1.2 billion euro (US$1.27 billion) friendly takeover offer accepted by the management of Biotest, a German blood plasma products company, whose products are used to treat blood coagulation disorders, auto-immune diseases and immune deficiencies.

Biotest's shares are currently listed on the Regulated Market in Frankfurt, which specializes in new and growing companies. Its shares are a constituent of the Small Cap DAX (SDAX). The company is based in Dreieich near Frankfurt.

The Biotest Board of Management and Supervisory Board had already said that they welcomed the approach by Creat, and were looking ahead to an investment drive to more than double output capacity by 2022.

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