Cash offer at US$ 465 per share plus special dividend of CHF 5
- offer equivalent to CHF 480 per share
- proposed ordinary dividend of CHF 11 to be paid in addition
Syngenta is a Swiss company headquartered in Basel, Switzerland and the offer's numbers relate to the stock listed in Switzerland. However, the main component of the offer is in US$, as stated. The ADR ratio is 5:1, so those terms need to be adjusted to be meaningful for the SYT share price. They translate as follows to around $96.2 ($465/5 + CHF 5/5 + CHF 11/5, with USD/CHF near parity).
SYT presently trades at $80.20 as I write this. Hence, it's trading at a ~16.5% discount to the offer price, or said another way, there's ~20% upside to the offer price. The deal is likely to take place within the next 3-6 months, providing a decent return.
Furthermore, Monsanto (NYSE:MON) has in the past tried to acquire Syngenta. It might try again - though things are made harder by the fact that ChemChina's offer is all cash, whereas MON would need to offer a stock component (given the size), which would necessarily entail a higher premium to be accepted. Even the possibility that MON might try to join the fray can help close the discount significantly.
The main risk with this arbitrage trade is that the deal might not go through. If that were to happen, it would happen on political grounds. ChemChina has sought to minimize this risk by promising to keep Syngenta's headquarters in Basel, Switzerland and by also promising to re-list Syngenta afterwards, while keeping a majority stake.
I see the following regarding this deal:
- Upside is $16 to the offer price ($96.2) with some further optionality in terms of a possibly competing offer from MON.
- Downside is ~$7.2 to $70 in the event of the deal falling through.
- There is no currency exposure as the offer is stated in US$.
- The deal is much more likely to close than to fall through.
Hence, this is clearly an interesting merger arbitrage opportunity.
Syngenta is an interesting merger arbitrage opportunity, with upside to be realized either through the narrowing of the existing discount or through the deal closing. There's potential for an annualized return in excess of 40%, to be realized in the next 6 months.
There's also some optionality in that MON might enter the fray or be rumored to do so.
Disclosure: I am/we are long SYT.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.