Ag Sector Piggies Go to Market

The last post discussed the performance and future of Marrone Bio Innovations (MBII:  Nasdaq) and its bio-based solutions for agriculture crop and pest and disease control.  While Marrone has reached commercial stage it has not yet reached profitability.  The company now only needs to grab market share and drive its top line to deliver the earnings that should in turn drive its stock price higher.  Shareholders may not get a chance to watch these developments.  Large agriculture companies seem to be in the hunt for interesting technology and proprietary solutions.  A selection of recent deals follows.

In December 2019, the far flung Certis AgriScience operation of Japan’s industrial conglomerate Mitsui & Company Ltd. acquired agriculture technology Belchim Crop Protection NV/SA. The deal is still unfolding in two step process that is expected to be completed in early 2021.  In the end, Mitsui’s Certis group will have an inroad into Europe’s crop protection market. 

Certis already has a broad line of biopesticide products for specialty agriculture products as well as home and garden applications.  The product line was built on the fermentation technology bought in the 2001 acquisition of Thermo Trilogy as well as the 2017 deal for LAM International and its fungus-based biological pesticides based.  Broadening its portfolio with Belchim’s innovations is expected to strengthen the Mitsui-Certis market position in a market that is keen on adopting biopesticides. Pests are less likely to develop resistance for biologically based controls than complex synthetic chemistries

In February 2019, India’s UPL Limited acquired Arysta LifeScience, Inc. for $4.2 billion in cash.  UPL offers solutions to farmers, including both conventional and bio-based pesticides and fertilizers.  Based on Connecticut Arysta has developed a portfolio of chemical and biological crop protection products for all phases of the crop cycle from seed to harvest.  Arysta also sells plants and seeds for its home base in North America. 

UPL appeared to be primarily motivated to get a better foothold in markets outside India as well as to burnish its image as a well diversified agriculture company.  UPL, of course, had its beginning in chemical fertilizer and was previously known a United Phosphorous.  Arysta has given UPL the chance to embark on a new branding effort called OpenAg with claims to sustainability and environmental responsibility.

Although it was a deal completed some years back the 2012 acquisition of AgraQuest, Inc. for $425 million in cash has been an important driver of Bayer’s (BAYN:  DE) CropScience subsidiary.  At the time CropScience was already a worldwide organization with a broad portfolio of crop protection, pest control, seeds, and crop trait products.  However, AgraQuest jump-started Bayer’s biological technology with a line of biopesticides.  AgraQuest is focused on natural products for pest control and yield enhancement. Bayer calls ‘low chemistry’, which may be another way of describing products that succeed in growing food crops without killing something else like humans or animals.  AgraQuest’s flagship product, Serenade, is a fungicide based on a strain of bacillus subtilis.  It serves as an effective antimicrobial for vegetable, fruit and nut crops, delivering results for growers without putting organic status in jeopardy.

AgraQuest already had found a foothold in the agriculture markets of over two dozen countries at the time of the deal.  Since then Bayer’s established sales organization and AgraQuest have been successful in cross-selling a merged portfolio of conventional and ‘green’ crop solutions.  Bayer also folded AgraQuest’s research and development effort into a new ‘biologics’ division that was headed up by the former AgraQuest chief executive officer. 

Patience is advised for those investors who may miss the ‘pure plays’ of the Arysta LifeSciences or Belchims of the world.  Strategic decisions by giants in the industry could put investors’ favorite agriculture stocks back into the market.

China National Chemical Corporation or ChemChina (000553:  SZ) acquired the Swiss pesticide producer Syngenta in 2017 for $43 billion.  At the time it was the largest foreign acquisition of any China company.  The Swiss pesticide and seed company seemed like a good vehicle to improve China’s domestic agriculture output.  Nonetheless, at the beginning of January 2020, ChemChina announced that its agriculture assets will be consolidated into a new holding company along with those of Sinochem (600500:  SS).  Back under its old name of Syngenta Group and the new entity could be re-financed and begin public trading as early as mid 2020. 

ChemChina had not lost interest in Syngenta or its biologically based product line.  Unfortunately, ChemChina has built up a heavy debt load over the last several years.  Divestiture of the valuable agriculture assets provide a smart vehicle to shore up ChemChina’s balance sheet.

The ChemChina acquisition of Syngenta two years ago turned ChemChina into a truly global agriculture player and served to give the somewhat stodgy agriculture industry a good shake.  The 2017 merger of Dow Chemical and DuPont gave the industry another jolt.  However, the reorganization of the DowDuPont (DWDP:  NYSE) assets is now is shaking loose a new Corteva Agriscience operation composed of the crop protection and seed businesses of Dow Chemical and DuPont. 

Corteva began trading under the ticker symbol CTVA in June 2019.  It might be a newly formed company but its product line is very much old school.  As a consequence Corteva has made a point to advertise its investments in agricultural biological.    For example, Corteva invested an undisclosed sum into Lavie Bio, a subsidiary of Evogene.   Lavie Bio uses big data and informatics to create microbiome-based products.  Corteva is one of four partners forming Evogene, including BASF, Bayer and ICL.   

    

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.