Headquartered in Beijing, China, ChemChina, a state-owned chemical company, operated in the product categories of agrochemicals, chemical materials, and specialty chemicals, rubber products, industrial equipment, and petrochemical processing (Refer to Exhibit – III for ChemChina’s Diversified Business Mix). It was founded by Ren in 1984 as a small solvents factory called “Bluestar Company”. Ren went on to build the vast ChemChina empire by taking control of over 100 troubled state-owned companies in China, with the government retaining ownership. The Chinese Chemical giant possessed production, R&D and Marketing Systems in 150 countries and regions. As of 2017, it was the largest chemical corporation in China and ranked 211th among the Fortune 500 Global Companies..

Business Environment Case Studies | Case Study in Management, Operations, Strategies, IT and Systems, Case Studies

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CONSOLIDATION OF GLOBAL AGRIBUSINESS

The global chemical, seed, and agriculture industry started consolidating at a rapid pace in 2015 with a series of mega M&A taking place continuously. It all started with the US$130 billion Dow-Dupont deal, which merged DuPont’s seeds business with Dow’s chemical capabilities. This consolidation set off waves of M&A in the agrochemical industry. After this merger, Monsanto persisted in trying to acquire Syngenta, but made no headway as Syngenta wanted a higher price than Monsanto was offering. But, according to analysts, the Dow-Dupont merger consolidated the agrochemicals market so heavily that it limited the merger opportunities for Syngenta and that made Monsanto or ChemChina its most likely partners. Soon after – in February 2016 – ChemChina announced its all-cash acquisition of Syngenta and Monsanto had to abandon its pursuit..

THE MEGA DEAL

According to data from Dealogic, ChemChina’s US$43 billion all-cash takeover of Syngenta was more than twice the size of any other foreign purchase made by a Chinese company. This deal was possible because ChemChina had won more than enough support from the shareholders of Syngenta. “Based on preliminary numbers, around 80.7% of Syngenta shares have been tendered, above the minimum threshold of 67% support,” the partners said in a joint statement. According to the reports, the agreed offer was for US$465 per share. ..

SEEDS OF GROWTH

Considered as one of the major deals re-forming the international agrochemical business, the ChemChina-Syngenta deal was expected to have a multi-dimensional impact on all the stakeholders involved. Agricultural economists expressed the hope that the Syngenta deal would raise yields in China and other parts of the world too, easing upward pricing pressure globally. This, in turn, would reduce the chances of food-based crises or geopolitical conflicts. .

A PUSH TOWARD GM TECHNOLOGIES?

A major topic of discussion among agriculture experts about the deal was regarding genetically modified seeds (GMOs). Many of them believed that the ChemChina deal could bolster China’s efforts to become a major player in GM food. But it seemed difficult because of the fear and resistance of the Chinese people toward the use of GMOs. One of the key causes for the public distrust of GM food was the fact that the GM technologies were dominated by the Western countries, particularly Monsanto and Dupont. To them, it meant that the control of their food supply and security would go into the hands of the Western countries. ..

HANDLING THE REGULATORY ROADBLOCKS

One of the major challenges that the ChemChina deal helped overcome was, successfully acquiring approvals from regulators in the US, Europe, China, India, and Mexico. “The EU and the US are the big regulatory approvals that we’re seeking,” said Frywald. The trend for consolidation in the agrochemicals business had triggered fears among the farmers that the pipeline for new pesticides and herbicides might slow down. Industry experts stated that the main concern of the regulators was that this deal would give too much power to ChemChina in the pesticide market, as it already owned Israel’s Makhteshim Agan Group, the world’s largest maker of generic pesticides. Margrethe Vestager (Vestager), EU competition commissioner, .

THE ROAD AHEAD

Agricultural economists stated that China was remapping its path to food security through this deal as it would give the Chinese government ownership of prized farming technologies, GMOs, and other high yielding varieties of seeds. Industry observers also believed that this deal might change the perception of the Chinese people toward GMOs, now that it was under the direct control of a government-owned domestic company. .

EXHIBITS

Exhibit I:China’s Overseas Shopping Spree
Exhibit II: China’s M&A activity in ‘Belt and Road’ Countries (As of June, 2016)
Exhibit III: ChemChina’s Diversified Business Mix
Exhibit IV: ChemChina’s Key M&A Events
Exhibit V: Major Players in the Global Seeds and Pesticides
Exhibit VI: China’s Food Security Landscape
Exhibit VII: Financial Highlights of ChemChina and Syngenta (2015-2016)