Sector Shake Up? DuPont Reported to be in Talks with Syngenta, Dow

Commodity prices have been falling for the past three years, and as pressure mounts on profits, some of the world’s largest agricultural companies are reportedly looking for ways to consolidate.

The Wall Street Journal reports that Syngenta AG is in early-stage negotiations with DuPont Co. over the potential merging of DuPont’s agricultural division according to sources familiar with the talks.

DuPont is also reportedly in talks regarding a separate deal with Dow Chemical Co., which is pursuing the possible sale of its seed and pesticide unit.

At the beginning of the last decade, a string of multibillion-dollar deals created the ‘big six” group of companies that would come to control the global seed and agri-chemical industry. These include Syngenta, DuPont, Dow Chemical Co., Monsanto, BASF SE and Bayer. The last mega-deal within the space occurred in 2007 when Monsanto bought U.S. cottonseed developer Delta & Pine Land Co. for $1.5 billion, according to Dealogic. If these talks bear fruit, it could result in the largest shake-up in the sector in a decade.

If a combination of Syngenta with DuPont’s agricultural unit occurs, it would create a body that would control 27% of global pesticide sales, according to Morgan Stanley, but analysts believe that such a deal would necessitate the divestment of Syngenta’s U.S. seed business to appease regulatory concerns due to the fact that DuPont controls 35% of the U.S. corn seed market and 33% of the U.S. soybean seed market.

A combination of DuPont and Dow’s agricultural operations would control 17% of the world’s pesticide market – ranking third after Syngenta and Bayer, according to Morgan Stanley. However, Dow’s seed business may likely need to be sold to complete such a merger.

Although these talks are in their early stages, and may not result in any deals, negotiations have become more serious after Monsanto abandoned its $46 billion bid to acquire Syngenta. If Monsanto was successful in its drive to acquire Syngenta, it would have created the world’s biggest supplier of seeds and pesticides. But now, it is Monsanto that could face the challenge of its competitors merging into the world’s largest entities.

Company executives have recently made note of their exploration of possible consolidations. Edward Breen, who assumed the role of interim chief executive officer at DuPont after former chief executive, Ellen Kullman stepped down on October 16, has stated that he has been involved in discussions with rival companies but has given no solid specifics, and Andrew Liveris, chief executive of Dow Chemical, has said “Everyone is talking to everyone”.

These agricultural giants have faced market challenges on multiple fronts in recent years. U.S. farm incomes are estimated to fall to their lowest in a decade, while global push-back is mounting from both governments and consumers who are increasing their resistance to common agri-chemicals, pesticides, and biotech seeds, while investors are increasing pressure to improve returns.

“The natural evolution is to get together, cut costs, combine R&D efforts and get scale,” said Ari Gendason, senior vice president of corporate investments for Continental Grain Co. “If one [merger] happens, more than one will happen.”

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