No. 8: Ag Consolidation Continues; Mergers Dominate 2015 News

By Pamela Smith

DTN/Progressive Farmer Crops Technology Editor

It has been a year for the mega-deal. A record $4 trillion in global mergers and acquisitions dominated the business wires in 2015 as companies sought to fight sluggish economic growth, fend off activist hedge funds, take advantage of the strong dollar and find ways to squeeze more out of mature markets. By comparison, mergers and acquisitions across all industries hit $3.5 trillion in 2014.

Monsanto kicked off the agriculture sector courtships when the St. Louis biotech and seed giant proposed to buy Swiss rival Syngenta. Monsanto abandoned the pursuit in August after Syngenta rejected a pot that had been sweetened to $46 billion in cash and stock and a $2 billion break-up fee. Syngenta moved to appease upset shareholders by offering to sell its global vegetable-seed business and return $2 billion to shareholders.

While Syngenta rebuked initial advances, the activity set off a flurry of other talks that culminated in a quick wooing between Dow Chemical and DuPont. In early December, the two companies announced intentions to combine business units and then divide into three separate companies; one would be agriculture-focused. The union must still endure antitrust and other regulatory scrutiny. However, the pre-agreement has been hammered out and when the vows are finally exchanged, the DowDuPont deal will create a single company of roughly $81 billion in revenues, making it the largest seed and crop-protection provider in the industry.

Stagnant company earnings coupled with falling commodity markets fueled the interest in merging, but both companies were in the crosshairs of activist investors. Daniel Loeb”s Third Point LLC hedge fund, with $1.3 billion of Dow’s shares, had demanded spin-offs and pushed until the company added four new board seats. Prior to the merger announcement, Dow had sold a few product lines — including its entire global dinitroaniline (DNA) herbicide portfolio to Gowan Company.

Nathan Peltz of Trian Fund Management narrowly lost a bid to install himself on DuPont’s board in June and was using his $1.5 billion stake in the company to push for increased value.

The combining of these two giants has significant meaning at the farm gate, particularly on the seed side of the ledger. The new marriage would whittle the field of five major U.S. seed players to four: AgReliant, DowDuPont, Monsanto and Syngenta. The DowDuPont combination also narrowly edges out Monsanto as seed market leader and concentrates seed sales market share into the hands of two vendors and their affiliates. Local and regional seed companies still retain slightly more than 11% of the market share.

Rumors the DowDuPont merger might cause Monsanto to rekindle the Syngenta courtship abound. However, the most recent takeover bid for Syngenta is all cash and comes from China National Chemical Corp., also known as ChemChina.

Meanwhile, John Deere opened their cab in 2015 by acquiring Precision Planting LLC from Climate Corporation, a division of Monsanto. At the same time, it reached a multi-year “digital ag collaboration agreement” with Climate Corp. The green machine also acquired Monosem, a French planter technology company with operations in both Europe and North America. Also, in early October, Deere and Colorado-based software company DN2K, formed a joint venture to develop a cloud-based service to allow ag retailers and others to better share machine-to-machine data.

Trimble acquired Agri-Trend, a Canadian company that bills itself as “”North America’s most expansive network of agricultural advisers.” It also took over the Swedish company PocketMobile.

Crop insurance, fertilizer, grain firms and railroads alternately courted and snubbed suitors throughout the year. Canadian Pacific Railway has been in hot pursuit of the Norfolk Southern railroad. On Dec. 16, CP attempted to bolster its $30 billion cash-and-stock bid by adding a financial incentive known as a contingent-value right. Its new offer would pay Norfolk Southern shareholders as much as $3.4 billion if the value of their shares declined during a lengthy regulatory review.

ADM sold its global chocolate business for $440 million to Cargill. In July, the big news in the pork industry was Cargill’s sale of its entire swine and pork business to JBS USA. The $1.45 billion purchase price includes packing plants, feed mills and hog production facilities.

In December, the members of two Iowa farmer cooperatives approved a merger that will create a company called Landus Cooperative. The resulting company will make it the 10th largest cooperative in the country, according to USDA, and the seventh largest grain company in North America based on storage capacity and shuttle-loading ability on all of Iowa’s seven rail lines.

In June, the members of two large South Dakota farmer cooperatives voted against unification of the South Dakota Wheat Growers Association and North Central Farmers Elevator, in a proposed merger that would have placed the new company among the top 10 largest cooperatives in the country.

In another year-end move, Zurich Insurance Group AG agreed to pay up to $1.05 billion for Wells Fargo & Company’s crop insurance business, Rural American Insurance Company. The deal is expected to close by end of first quarter 2016.

Earlier in the year, OneBeacon, Monsanto’s underwriter and reinsurer in Climate Corp, transferred to AmTrust Financial Service, which was looking to expand into crop insurance. Farmers Mutual Hail Insurance Co. of Iowa announced in March it had completed the purchase of John Deere Insurance Co. The combined underwritten premium volume tops $1 billion and moves Farmers Mutual into one of the five largest authorized insurance providers for federal crop insurance. At the beginning of the year, HCC Insurance Holdings Inc., another company that focuses on a broad line of insurance products, bought Producers Ag Insurance Group, also known as ProAg Insurance, from CUNA Mutual Group for $105 million. HCC was then bought in June by Tokio Marine Holdings, a Japan’s largest insurance company.

Pam Smith can be reached at pam.smith@dtn.com