US authorities have agreed to the US$43 billion takeover of Swiss pesticide giant Syngenta AG by state-owned China National Chemical Corp (ChemChina, 中國化工), marking the biggest overseas acquisition by a Chinese firm.
The move lays the path for what would be the latest in a string of foreign investments by Chinese firms fueled by Beijing’s call for its companies to “go out” and expand.
It also came two days before a meeting between Chinese President Xi Jinping (習近平) and US President Donald Trump, who has castigated China over its huge trade surplus with the US and warned that its companies are putting US jobs in danger.
The US Federal Trade Commission (FTC) on Tuesday said it would give the go-ahead to the buyout by ChemChina, China’s biggest chemical company, as long as it stopped producing three pesticides to avoid monopoly conflicts.
The offer far outstrips China’s biggest overseas acquisition to date, China National Offshore Oil Corp’s (中國海洋石油) purchase of Canadian oil firm Nexen Inc for US$15.1 billion in 2013 and the US$14.3 billion paid for a minority stake in Australia’s Rio Tinto PLC by state-owned aluminum firm Aluminum Corp of China (中國鋁業) in 2008.
It also follows a series of purchases by ChemChina. Last year it bought a stake in Swiss energy and commodities trader Mercuria Energy Group Ltd as well as Germany’s KraussMaffei Group, which makes machinery for producing plastics and rubber.
In 2015 it took over Italian tire giant Pirelli & C, SpA, renowned for its Formula One equipment.
However, Beijing late last year began cracking down on companies’ overseas investments after a record-setting shopping spree raised concerns capital flight and reckless spending are dragging on the economy and leading to a drop in the yuan.
The restrictions ban most deals worth more than US$10 billion and curb investments of more than US$1 billion in sectors unrelated to a company’s core business.
According to a preliminary settlement, the FTC said ChemChina would have to offload the herbicide paraquat, insecticide abamectin and fungicide chlorothalonil, saying consumer prices would be in danger of rising otherwise.
“Without the proposed divestiture, the merger would eliminate the direct competition that exists today between ChemChina generics subsidiary ADAMA and Syngenta’s branded products,” the FTA said.
“The merger would also increase the likelihood that US customers buying paraquat, abamectin and chlorothalonil would be forced to pay higher prices or accept reduced service for these products,” it said.
More than a quarter of Syngenta’s revenue in 2015 came from seeds and crop protection in North America, according to Bloomberg, while it also has research and production units there.
The FTC said it worked with its counterparts in Australia, Canada, the EU, India and Mexico “to analyze the proposed transaction and potential remedies.”
Syngenta chief executive officer Erik Fyrwald last month sought to reassure about its future.
“Syngenta will stay Syngenta” and will keep its headquarters in Basel, he told Bloomberg in an interview last month.
“We’re not integrating with ChemChina,” he said. “There’ll be ChemChina members coming onto our board. The chairman will be chairman Ren [Jianxin, 任建新] from ChemChina, but we fully expect to operate as we do today.”
The FTC’s settlement is subject to public comment for 30 days after which the commission will determine whether to finalize it.
Syngenta said in February that it expects the transaction to close in the second quarter.
The deal is part of a consolidation in the agro-chemical sector, with German giant Bayer AGoffering US$66 billion for US firm Monsanto Co, which itself had tried to acquire Syngenta for US$46 billion in 2015.
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