Experts say scale doesn't always guarantee benefits
Domestic chemicals conglomerate China National Chemical Corp (ChemChina) has been moving quickly to acquire overseas companies in recent years, with the latest takeover target being Swiss pesticide maker Syngenta AG.
Experts said that the acquisition of Syngenta should be part of a "national strategy" to seize back the lifeblood of the domestic agriculture industry.
"China has always had to rely on overseas companies to provide agricultural products like pesticides, which means that China's agricultural sector is more or less reliant upon overseas countries and regions. But the acquisition of Syngenta would help change that situation, as ChemChina can share some of the advanced technologies of Syngenta," Li Xiaogang, director of the Foreign Investment Research Center at the Shanghai Academy of Social Sciences, told the Global Times on Tuesday.
But he warned that Chinese companies lack experience in overseas acquisitions and there are many examples of such deals falling short of expectations.
According to a statement on the official website of ChemChina on Friday, about 80 percent of Syngenta's shareholders backed ChemChina's offer to take over Syngenta as of Thursday, the deadline for the acquisition's main offer period.
ChemChina announced in February 2016 that it planned to acquire Syngenta for $43 billion, which has become the country's largest overseas acquisition ever, according to another statement on ChemChina's official website.
US-based agriculture news website agribusiness.com in February 2016 cited Davor Pisk, Syngenta's chief operating officer, as saying that ChemChina beat other companies, like the US-based Monsanto, because its offer was more compelling and won't result in large-scale job cuts or a reduction in choice for growers.
The Financial Times reported on Monday that ChemChina would merge with another Chinese chemical giant Sinochem Group, in order to make sure that ChemChina has enough financial strength to acquire Syngenta.
Neither ChemChina nor Syngenta could be reached for comment as of press time.
Li said that ChemChina's takeover of Syngenta is likely to be a "national strategy."
"Many countries and regions along the 'One Belt, One Road' (B&R) initiative are agriculture-led, and the government may want to enhance domestic agricultural companies' global resources to strengthen cooperation with those B&R countries and regions," he noted.
Wu Chenhui, an independent analyst, said that ChemChina may have made the acquisition decision in order to enhance its business scale and global competitiveness, but he cautioned that there might be some lurking risks in this acquisition, such as the EU's intensifying restrictions on the use of pesticide, as well as overseas countries' anti-monopoly regulations.
The takeover of Syngenta is another step in the company's strategy of overseas expansion. In January 2016, it acquired a 12 percent stake in another Swiss company Mercuria Energy Group, Bloomberg reported in January 2016.
In the same month, ChemChina also led the acquisition of German-based industrial machinery maker KraussMaffei Group for about $1 billion, according to a report from Reuters.
In March 2015, ChemChina bought into Italian company Pirelli, the world's fifth-largest tire maker at the time, in a 7.1 billion euro ($7.7 billion) deal.
So far, ChemChina has acquired eight overseas companies in different industries, said domestic media reports.
According to Li, about 60-70 percent of all the international acquisitions take place between developed countries, and so the increasing pace of Chinese companies' overseas acquisitions show China's increasing economic power.
But he also cautioned that the probability of failure is very high for domestic companies that make overseas acquisitions. "Many of them can't get good benefits, like technology, from the companies they buy. In other cases, overseas companies' products can't fit that well in the Chinese market," Li said.
Wu said that the success of acquisitions does not hinge on their scale.
