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Ejector seed

21 October 2015 By Neil Unmack

The departure of Syngenta’s chief executive may open the door to opportunists. The Swiss agrochemical company’s shareholders had grumbled that Mike Mack and his board were too quick to reject a bid from U.S. rival Monsanto. New leadership may be more credible than Mack at cutting costs – if they get the chance.

Mack left of his own volition, but he committed three mistakes. His plan to boost margins did not convince. After Monsanto abandoned its takeover approach, Mack’s follow-up plan – selling the profitable vegetable seeds business to fund a buyback – looked like a knee-jerk reaction. Shareholders grew more restive as Syngenta’s share price slipped, closing 30 percent below Monsanto’s offer price of 449 Swiss francs on Oct. 20.

A new face at the top could give Syngenta’s standalone strategy more credibility. The group plans to increase its EBITDA margin to 24 to 26 percent by 2018. A new chief executive could announce a fresh wave of cost-cutting, and link his compensation more closely to hitting that target. On current revenue forecasts of $15.6 billion, that could generate nearly $4 billion of EBITDA. Value it at the company’s historic multiple of 11 times and the stock would be worth about 420 Swiss francs a share, nearly a third above the current level.

There are also more dramatic options. The fastest route to value creation would be to find a buyer, for parts or the whole. Syngenta’s enterprise value is around 2.4 times forecast sales for 2015 versus a sector multiple of three. The board may not change its view on the merits and risks of a bid from Monsanto. But the firm could explore a merger with one of the other large agrochemical players. The departure of DuPont Chief Executive Ellen Kullman could open the door to a tie-up.

Sorting out Syngenta could involve some or all of the above. Mack’s departure alone pushed the group’s share price up 5 percent on the morning of Oct. 21. The hope for change may buy some time. But if Syngenta stays rudderless for long, opportunistic approaches may take root.


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