Monsanto (MON) — Syngenta (SYT) Merger: Delayed, Not Dead

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Swiss agrochemical giant Syngenta (SYT) formally rejected the $45 billion unsolicited takeover offer from U.S. counterpart Monsanto (MON) today, saying the deal undervalued the company.

Monsanto syngenta merger syt stockBut that doesn’t mean we won’t see a MON-SYT merger ever. In fact, Wall Street is wagering that Monsanto will eventually increase its bid for its overseas peer, judging by the reaction of the stock market today.

SYT was one of Friday’s hottest stocks out of the gate, soaring 13% on the news of the rejected takeover.

Shareholders could sure use a break — before today’s gains, SYT stock was a little below breakeven over the past 12 months, trailing the returns of the S&P 500 by a full 12 percentage points. Profits have fallen in each of the last two years, and Syngenta has been on the wrong end of 45 lawsuits regarding its genetically modified corn, according to the Wall Street Journal.

So why on earth does MON even want SYT? And why is this not the last time we’ll hear the buyout talk?

A Match Engineered in Heaven

Well, first of all, MON and SYT are two similar businesses with some overlap. While Syngenta mostly specializes in chemicals that increase crop yields, Monsanto focuses on genetically modified organisms, or GMOs, that enhance crop yields. Same desired result.

So not only would SYT diversify MON geographically, it would also give it a firmer grip on controlling all the major inputs involved in boosting the global crop yield.

Oh, and there’s also this little thing called a tax inversion, something that allows companies to move their corporate HQ to more tax-favorable countries through acquisitions. MON could be after that, too.

A Monsanto-Syngenta merger would also be more likely if the U.S. dollar continues to strengthen against foreign currencies. The Swiss franc has lost about 6% of its value against the greenback since early 2014.

This is somehow the way the corporate back-and-forth goes. I start low, you say no, I go a little higher — yada, yada, yada. From Monsanto’s perspective, at least it’s unlikely to get into a bidding war with another potential suitor — a process that can be wildly expensive.

Either way, Syngenta seems to think that it’s worth more than Monsanto’s willing to pay, according to a statement from the company this morning:

“Syngenta is the world leader in Crop Protection, the number three in Seeds and the first company to introduce integrated solutions for growers. Monsanto’s proposal does not reflect the outstanding growth prospects of Syngenta’s integrated strategy and the significant future value potential of the company’s crop-focused innovation and market leading positions.”

The stock market would seem to agree. I wouldn’t be surprised to see a new Monsanto bid on the table by the end of 2015.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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