Let me say up front that I am not a protectionist. I believe in free markets and equitable world trade.
But I must say that the potential takeover of Syngenta by China’s state-run ChemChina – which follows the acquisition of Smithfield Foods by Shuanghui International Holdings Ltd. more than two years ago – has given me pause.
Shuanghui acquired Smithfield for what seemed at the time to be the princely sum of $4.7 billion. But that’s small potatoes when compared to ChemChina’s all-cash offer of $47.9 billion, including debt.
The mega deal thrusts China to the forefront of the world stage of mergers and acquisitions.
It also likely signals more to come.
Dwarfed in the enormity of the ChemChina takeover are all the other acquisitions China has pulled off thus far in 2016. Through the first week of February, Business Insider reports:
There have already been 82 Chinese outbound mergers-and-acquisitions deals announced this year, amounting to $73 billion in value, according to Dealogic. That’s up from 55 deals worth $6.2 billion in the same period last year.
Last year was a record-breaker for Chinese outbound deals, with 607 deals valued at $112.5 billion in total. Just over one month into 2016, and China is more than halfway to breaking that record.
China’s mergers and acquisitions are clearly accelerating. What makes this amazing is that China is doing it even while its economy is in a funk.
On the face of it, you have to wonder where ChemChina is getting all that money. Yes, it has by its own reckoning a little over $44 billion in assets. But it also has struggled to produce profits of late.
For the quarter ended Sept.30, it posted a net loss 889.3 million yuan and had a total debt of 156.5 billion yuan. That’s five times ChemChina’s cash and equivalents.
The damn-the-torpedoes-full-speed-ahead mergers and acquisitions strategy to eager suitors masks growing concern over China’s foreign currency reserves, which at $3.25 trillion is the lowest in three years.
The International Monetary Fund believes China needs $2.75 trillion to manage its financial system. What happens if that $500 million buffer continues to dwindle? Will state-run companies like ChemChina continue to flex their mergers and acquisitions muscles?
Meanwhile, expect U.S. regulators to closely examine the ChemChina-Syngenta deal. The Committee on Foreign Investment in the United States will consider whether the deal provides a food security risk to the United States.
But considering that the committee approved the Shuanghui International takeover of Smithfield, it is hard to imagine it holding up this new deal.
About Dave Dickey
Dickey spent nearly 30 years at University of Illinois at Urbana-Champaign’s NPR member station WILL-AM 580 where he won a dozen Associated Press awards for his reporting. For the past 13 years, he directed Illinois Public Media’s agriculture programming. His weekly column for Big Ag Watch covers agriculture and related issues including politics, government, environment and labor. Email him at firstname.lastname@example.org.
This column reflects the writer’s own opinions and not those of Big Ag Watch.