Friday, 28 August 2015

So what to do about Syngenta now that Monsanto have walked?

Syngenta shares have been volatile over the last couple of days following the announcement that Monsanto is not going to proceed with a bid.  And where did the company's shares end up?  Pretty much back to the levels seen in the March-May period before there was even a hint that Monsanto may be interested.

I chatted about top-slicing above the CHF400 level (link here) back in May and enacted this for my pension fund back then.  So should I rebuild the position or not?

Looking a touch further back in my notes I wrote in April (link here) that a fairer value for the Syngenta shares (pre any Monsanto bid talk) was US$70-80 a share...or the equivalent of c. CHF330s-380s which implies that the shares are at least a little cheap.  

Of course no surprises with this given that not only are quite a few shares 'at least a little cheap' at the moment but the credibility of the Syngenta management surely has to be in question today given they turned down a bid which could have been worth deep into the mid CHF400s a share on behalf (and without consulting) Syngenta shareholders.  

Why did they turn the bid down again?  As per Syngenta's press release: 

The 'sufficient clarity' aspects seem slightly strange given that my understanding (via Monsanto's comments) was that the Syngenta management refused to meet with any of Monsanto's representatives where many of these issues could have been progressed or maybe even cleared up (despite noting they 'engaged with Monsanto in good faith'). 

Possibly the most interesting aspect is the second paragraph which notes that the company is 'committed to accelerate shareholder value creation'.  I previously have noted the company's lowly geared balance sheet combined with good pricing power and some strong market positions plus a fairly extensive cost cutting programme. I believe there is good scope to augment the current 3.4% dividend yield for a start. 

Inevitably there is going to be little news until the company's Q3 results but at this point I think risk-reward is good for the simple reason that surely something is going to come out of this approach even if it is a revolt against the current Syngenta management by shareholders.  I like the underlying agriculture and related themes behind the shares and am happy to re-augment my position to put it back to how it was before the Monsanto approach earlier this year.  

So embrace the volatility and buy.  

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