What's going on?

According to a Bloomberg report, China (via state-owned chemicals company ChemChina) has made a $42 billion bid to buy Syngenta, a huge company that makes pesticides and seeds (like corn seeds). Syngenta reportedly rejected the bid but the stock jumped 5% on the news.

 

What does this mean?

Agrochemical�companies have been struggling to grow their profits in the past few years. The falling price of crops (like wheat and corn) doesn�t help because it makes farming less profitable, which consequently leads to less demand from farmers for pesticides and seeds. When an industry stops growing, �consolidation� tends to occur – that means companies start buying one another. And that�s exactly what appears to be happening in the agrochemical�industry with reports earlier this month that Syngenta and its competitors are discussing potential deals�with one another. That probably means lots of competitive bidding behind the scenes and major news to come.

Why should I care?

The bigger picture: Getting regulatory approval could be a problem for China. Syngenta apparently turned down the takeover attempt (although they remain in discussions). One of the reasons cited was a concern that the deal might fail to get approved by various governments. Syngenta is a Swiss company, but it does a lot of business in the US � and it�s not clear how the US and other jurisdictions would feel about a Chinese-owned company being so important to their food supply.

For stocks: When a company gets bought, it usually gets bought for a lot more than its current stock price. The supposed bid price for Syngenta is 30% above the price at which the stock was trading prior to the news leak. So if �consolidation� takes place, it�s likely that the stock price of the company or companies getting acquired will go up – and Syngenta might indeed be one of them.