The record-breaking $43 billion acquisition of Swiss agrochemical giant Syngenta AG by Chinese state-owned China National Chemical Corp. was a case study of corporate persistence and diplomacy.
In order to pull off the landmark all-cash deal—the largest ever outbound acquisition by a Chinese company—ChemChina had to win over a reluctant seller, which had just fought off a series of hostile bids from United States rival Monsanto Co., and agree to a series of unprecedented concessions over Syngenta’s future governance.
Lawyers also had to contend with an almost impossibly tight timescale, an antitrust process that would involve regulators in 20 jurisdictions, and the small matter of raising financing equivalent to the gross domestic product of Slovenia.
“It was just on an entirely different scale to any outbound Chinese investment that had gone before,” says Simpson Thacher & Bartlett New York M&A partner Alan Klein, who jointly led the firm’s team advising ChemChina alongside Beijing corporate partner Shaolin Luo.
Syngenta rejected Monsanto’s repeated advances due to what it considered to be the “enormous regulatory obstacles” of bringing together two agrochemical and agricultural biotechnology leaders, according to Davis Polk & Wardwell global M&A co-head Louis Goldberg, who advised the Swiss company throughout the process.
But the generous valuation of Monsanto’s offer, which was at a significant premium to Syngenta’s stock price, had turned the heads of the Swiss company’s shareholders. “Shareholders were frustrated at what they perceived to be a lost opportunity and were putting the company under real pressure to pursue another transaction,” Goldberg adds.
So, when ChemChina—a broader business that in addition to agrochemicals also covers rubber products, industrial equipment and petrochemical processing—made its first tentative advances over the summer of 2015, Syngenta listened.
Syngenta remained skeptical that the deal would receive regulatory approval, however, or that ChemChina could drum up the necessary financing. The Chinese company’s first offer, $42 billion, was rejected in November 2015.
Klein’s team, working alongside Swiss firm Homburger—one of whose lawyers happens to be a board member at Syngenta—spent weeks analyzing the transaction’s regulatory backdrop, including the likelihood of getting approval from the Committee on Foreign Investment in the United States (CFIUS). “We came to the conclusion that the deal would be achievable,” Klein says. “We then had to convince Syngenta.”
The two companies set a self-imposed deadline of Feb. 8, the beginning of Chinese New Year, to work out their differences. Cue a frenzied succession of endless conference calls and meetings between lawyers and deal teams across Switzerland, New York and Beijing. As often seems to happen to lawyers working on such high-profile deals, this most intense period of negotiation happened to coincide with a family vacation Goldberg had planned in his native South Africa. “I spent two weeks in Cape Town looking out the window at my family enjoying themselves on the beach while I was on the phone or my laptop trying to get the deal done in time,” he says.
The formal bid was completed with just days to spare, and announced on Feb. 3, 2016. But that wasn’t an end to the challenges.
Although it was incorporated in Switzerland, Syngenta’s New York Stock Exchange listing and sizeable U.S. shareholder base necessitated a complex dual Swiss and U.S. tender process, which launched the following month. Lawyers on both sides had to work with the U.S. Securities and Exchange Commission and the Swiss takeover board to convince them that the interests of shareholders in both jurisdictions would be accommodated.
The situation was further complicated by the fact that Swiss takeover rules require a buyer to have definitive financing in place and approved by regulators before launching a tender offer. ChemChina had barely a month to secure $43 billion from lenders and have it signed off. “Raising $43 billion simultaneously under different contractual arrangements in China and the U.K. in such a short timeframe was nothing short of herculean,” Klein says.
Antitrust and CFIUS approvals, on the other hand, dragged on for additional months. Some U.S. lawmakers expressed concerns over a Chinese state-owned entity owning a company involved in the U.S. food supply. “We were confident that we’d get [CFIUS] approval,” Klein says, “but unlike antitrust clearance, where you’re dealing with economic questions, CFIUS has more of a political element that makes it much harder to predict.” ChemChina’s investment was greenlit in August, and subsequently received the necessary approvals from antitrust bodies in the U.S., Europe, Mexico and China.
In addition to paying a significant premium for Syngenta, ChemChina committed to uphold a series of unique governance arrangements after the deal had closed. “Syngenta is extremely proud of its principles of agricultural sustainability and health and safety,” Goldberg says. “There was a concern that by selling, particularly to a foreign company, some of those best practices might be lost. It was a major issue for them.” The commitments included maintaining a certain level of Swiss representation on the Syngenta board and imposing limits on future debt levels.
“ChemChina was very accommodating—much more so than a buyer has to be, given that it was paying a full price to Syngenta shareholders,” Klein says. “It’s a sign of the company’s desire to be viewed in the West as a thoughtful and responsible investor, and as a credible steward of these assets.”
The honorees in this category were Simpson Thacher; Homburger; Linklaters; Davis Polk and Bär & Karrer.
For the full list of 2017 Global Legal Award winners, click here.
For more on international law firms, see our Global 100 coverage.