– Syngenta AG (SYNN VX): Concurrent with largely in-line FY15 numbers (slightly missing on top line, but slightly beating on EBITDA), Syngenta announced a recommended all cash transaction from Chemchina: ChemChina has offered to acquire SYNN for $465 cash  + CHF16 dividends or (pre-tax) headline price of about CHF489.8 (or about 4% higher than publicly rumoured CHF 470 take out price),  with Syngenta’s board  unanimously recommending the transaction. Deal is to be structured as both a Swiss and US tender offer, with the Swiss prospectus to be published within 6 weeks. Deal is expected to close by late 2016. ChemChina plans to delist Syngenta if it receives sufficient acceptances.

As we had believed since November (and reiterated multiple times in last couple of weeks), Chemchina moving in on Syngenta was a very well (publicly) flagged scenario.  Although any large scale (let alone the biggest ever) acquisition by a Chinese company will attract a bucket load of (Swiss/European/US) political headlines in 2016 (especially in a US election year), we believe this deal will represent an attractive trading arb name/spread during the long 9-12 months life of this deal -with most likely a good number of entry and exit points.

We believe however that at current pricing, Syngenta (trading at almost 20% spread) is (touch) too wide given a) this prices in less than 55% probability of deal success (assuming CHF 325 downside-including rumoured $1.5bn or CHF 17 per share break fee for Syngenta); b) main global regulators (except US) will assess this deal on antitrust rather than on political grounds, with no real antitrust issues given no significant overlaps between Syngenta and Chemchina (also the more that Syngenta will be run as a standalone entity, independent from other ChemChina companies); c) fully valued 50%+ premium offer with no high shareholder acceptance threshold or large reference shareholders (deal will require 66 2/3% Syngenta shareholder tendering – as customary under Swiss tender offers) as Chemchina doesn’t necessarily looks to achieve the high squeeze out threshold; c) secured deal financing with committed financing from Chinese institutions and one Western bank; and d) the US CFIUS issue might be too exaggerated (Syngenta’s US revenues are only about 20% of its total revenues): although deal will most likely trigger at least a 75 day process – with potential for couple of new period extensions (normal CFIUS process is an initial 30 day review followed by 45 day in-depth extension), the acquisition of Syngenta might be more of a political headline attracting deal  rather than a a national security issue (eg. in 2014 CFIUS approved Chinese Shuanghui International’s acquisition of Smithfield Foods, a US meat processing company). Rather than outright block by CFIUS, CFIUS could also impose any stringent conditions, or even outright impose sale of Syngenta’s US business – however even that worse case would not necessarily mean deal to collapse.

Subject to tax treatment on the CHF5 special dividend, would add more in the CHF 400-405 range (although we prefer to buy the ADRs around $78-79 given offer is $denominated)- as hard to see the implied probability of this deal falling much below 50% in the near/medium-term.