Syngenta-Monsanto sale/merger?

The Syngenta-Monsanto “reality show” continues, but what is seen in public is obviously not what is happening behind the scenes. Some interesting factors in the saga:

  1. Monsanto wants a European base to off-load its US based tax (apparently);
  2. Monsanto has in many ways “re-invented’ itself over the years and now tots itself as a “Technology” company (not an agrochemical company). If you remember its name was synonymous with “roundup”, not to be confused with what it now sells in GM markets being “roundup ready” products, following the expiration of the glyphosphate roundup patent back in 2000 (see the Wikipedia link);
  3. Monsanto wants to be more dominant in Asia and thinks Syngenta has more experience there (question mark here especially over China);
  4. Syngenta management wants to sell but obviously wants to be able to justify it to regulators, the media and of course politicians in the US and Europe (and outwardly to shareholders but this would be a secondary concern) – aka sweeteners and money. Remember that many activist groups will have a field day with all the regulatory approval processes required and politicians, being politicians, will “show concern” with the media lapping it all up. Lots of money for lawyers and lobbyists. Basically, the sale needs to be seen as being politically correct. Syngenta and Monsanto will have to careful, or perhaps that is partly their strategy, of not “crying wolf” as the media is bored with their decisiveness (lack of) to-date – it doesn’t sell news space;
  5. Syngenta is (and always has been) wanting to sell off its vegetable seed business. Fundamentally Syngenta has no idea of how to operate a vegetable seed business, despite having margins way in excess of the chemical arm (margins of 30% minimum for sweet corn and in excess of 60% for many of the vegetables), and the “chemical management” teams have continuously floundered, never being able to come to grips with vegetable seeds. Ten years back Syngenta tried to integrate its agri-chemical and seed businesses (integrated solutions) against all the best advice, which was a total disaster. Syngenta is renowned within the company for meetings and “slide packs”. Sure a picture tells a thousand words, better than long written reports, but there’s no greater value than the experience and knowledge gained from being directly in the field and experiencing the vegetable product and its market, which the vast majority of decision makers in the company never experience. How can you make a decision on a product without this?
  6. Monsanto also wants to sell off its vegetable seed business;
  7. Monsanto too has also never come to grips with the vegetable seed business. Its management technique of choice, major restructures (and upheavals) every five years or so, destroys product lines and puts onto the streets the R&D teams responsible for innovation and developing products that would later make money. As such, and this also goes for Syngenta, Monsanto is relying on old products, many of which are market leaders but have been so for more than 10 years and some more than 20, to sustain its finances;
  8. Monsanto bought (acquired) the vegetable seed business company Seminis, which was basically a shell of its former self, from the often termed investment company owners,  “The Mexicans” (see Wikipedia listing which is surprising very limited, perhaps intentionally so). They then proceeded to integrate it into the “Monsanto fold”, rationalising (as they would term it) many of the lines, which in short was restructuring of the type mentioned above. Operations in many Asian countries were shut down as too were promising and profitable vegetable product lines. Other seed companies, particularly in the Asian region, benefited from acquiring rights to products as well as experienced staff and facilities. In fact a slow sell-off of the Monsanto vegetable seeds business, or licensing of the sale (and in many cases the rights) of its varieties (and in some cases whole breeding programs) has been on-going particularly in Asia, which is an interesting alternative to outright sale of the vegetable seed business. The same has also been publicly visible with Syngenta as well through its E-Licensing. But the irony is that for both companies in selling many of its breeding programs potential purchasers are finding that the programs and germplasm are in such a dilapidated state, having been not maintained for years and in some cases lost because those who developed the programs are long gone, that they are worthless. Companies like Monsanto and Syngenta don’t seem to understand that the vegetable seed market, particularly in Asia, is highly segmented, very competitive, highly innovative particularly in disease resistance, lower value per seed compared to the US and Europe (except for Japan and Korea) requires long-term commitment and that unless you continue to actively develop a program you will loose your competitiveness within a very short time. But in saying that, both Monsanto (Seminis) and Syngenta have developed some really great vegetable varieties (e.g. tomato, seedless watermelon);
  9. One of the many profitable vegetable product lines for Seminis was tomato. Going back many years Seminis has been an innovator in this sector but that innovation evolved over time, time which the chemical management teams don’t see value in (but I am not saying that agrochemicals don’t also take time to develop, as they do, but the attitude is different and for the chemical side unless there is a 100 million dollar market likely, then it is a no-go – Syngenta as well). To corner the innovation of the tomato sector Monsanto also bought De Ruiter, which was arguably one of, if not the, leading tomato breeding innovation company in the world. In no time the Monsanto management totally destroyed the company with most of the R&D team leaving if not forcibly, voluntarily. On the bright side, some of those who did leave started their own companies who now contribute much to the industry, particularly on the R&D side;
  10. But Syngenta has also acquired many companies and then within a few years totally destroyed them, aka Goldsmiths, which was a world market leader in the flower seed business (RIP Goldsmith). Goldsmiths was acquired for Syngenta’s “Lawn and Garden” business which is now what, is not totally clear.

So the sale is (more than likely) a done deal pending more sweeteners (see above) as well as Syngenta being able to sell off its vegetable seed business. Having done this then Monsanto would be acquiring something it would integrate into its fold with less pain. The option, or should I say “preference”, is also there for Monsanto to off-load its vegetable seed business (note this doesn’t include the corn business which in the US is one of the major “technology products” in its portfolio) which, like Syngenta, can’t come to grips with. For both Syngenta and Monsanto, the timing of both selling off their vegetable seed businesses so as not to compete with each other in a market which is competitive, and where all the cards are already on the table and have been for many years, needs lots of behind the scenes negotiations with many players.

For those companies who rely on vegetable varieties from Monsanto (Seminis) and Syngenta, perhaps its time to diversify your portfolio. Looking on the bright side, there are lots of opportunities on the horizon for medium-sized seed companies in the Asian region to acquire breeding programs, products and experienced staff!! From seed comes new seeds.