Thread: Syngenta
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Old 23.09.2016, 11:08
hapmojong hapmojong is offline
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Many on this forum will know of Syngenta, the Basel based agrichem and seeds company. It’s now almost certain that Chemchina will complete its acquisition of Syngenta within the next weeks. A pivotal moment for Syngenta, that highlights how poor strategy and even poorer execution, have led to the poorest choices in a consolidating industry. As several Syngenta executives now retire, the word ‘distinguished’ is being used to describe their careers, when the word more properly highlights the weakness of their decisions and their lack of vision.

Some background to explain, particularly for people who might be thinking of joining Syngenta, to understand what’s been happening in recent years at Syngenta, and how the Chemchina deal really came about.

From its inception in 2000, Syngenta had two separate business – the dominant Crop Protection agrichem business (the main engine of profit and cash generation, and with its roots in the European chemical industry), and Seeds (a collection of various small / medium sized companies purchased through an opportunistic series of acquisitions, with most of the big prizes going to competitors because Syngenta was unwilling to pay a premium for high quality Seeds assets). As a consequence, Syngenta was able to compete and be a market leader in agrichem, but was a much weaker player in Seeds, with Monsanto and Dupont / Pioneer being the main players. (As an aside, it might be worth mentioning the bizarre foray into venture capital led by David Jones, with a promise to have a portfolio with $1bn sales by 2007, and which even led to a picture of a pig on one of the early annual reports – no value ever materialised, and it is a minor footnote to Syngenta’s history, but it does highlight the recurring problem Syngenta has had in recruiting capable executives).

In 2010, Syngenta embarked on a new strategy, to combine CP and Seeds into one integrated business, as a means of differentiating itself from its competitors, and of providing ‘full solutions’ to farmers. This was initially well received, and very optimistic sales forecasts were made – first, $20bn sales by 2020, then increased a few months later to $25bn.

The reality was very different. The execution of the integrated strategy was exceptionally poor, with organisational confusion and ambiguity (two regional executives?), and a lack of investment in infrastructure to support new business models. It became increasingly obvious that there was a widening gap between the illusion of Mack / Ramsay, and the reality on the ground. In the larger markets, farmers weren’t interested in buying a bundle of products and services at a premium price – they had their own procurement capability and continued to shop around for a better deal. Syngenta’s Seeds business was simply too weak to sustain the integrated strategy, and both CP & Seeds began to lose market share in key markets as the business focussed on the internal mantra of integration. Mack's failures in managing North America were now being amplified across all the regions, with eager support from Ramsay, Pisk and Seabrook. Investment analysts saw through the hype and the financial window-dressing, and called out the management, to no avail – they were not interested in listening to others’ opinions, and produced more slides to insist on their case. Ramsay even railed ‘why don’t you get it?’ at a group of senior managers when they asked for clarity on accountability; he's been called 'Emperor Nero' ever since. Perhaps more importantly, Syngenta lost control over its pricing, seeds production, inventory and cash generation. All of which was clear to the analysts (BNP and JP Morgan especially, who each issued devastating reports), but the company’s press releases and financial results advanced ever further into the realms of unreality. Shocking, but true. Looking back, this was a real turning point for Syngenta, from a company that was generally well-run and friendly, to a culture that was destructive and which promoted those who shouted loudest. Targets were set to plot the path to the fantasy of $25bn sales – when these were inevitably missed, good people were dismissed, and in one year the entire bonus was cancelled, despite the enormous efforts made in the organisation to meet an unrealistic budget and to handle multiple and competing change programs. Life in Syngenta had morphed into a treadmill of attending multiple back to back meetings during the day, and then clearing your mails until the early hours each night. In Basel, the authorities made repeated requests to Syngenta to improve its working environment, as so many people were being recorded as suffering from work-related stress. Very little has been done to address this, other than to respond to the failure of the commercial strategy (and a market downturn that Syngenta never anticipated) by cutting costs and jobs. If you’re no longer working for Syngenta, then it can’t be the cause of your stress, eh?

Even if the execs didn’t fully appreciate it, Syngenta was badly wounded and it wasn’t surprising that Monsanto approached Syngenta in 2015 with a decent offer to merge. There is no question that this would have been complex and disruptive, but the strategic prize was clear, and worth the challenge – a Syngenta / Monsanto combination would have been a clear market leader even after antitrust divestments. Syngenta’s resistance was purely emotional, and lacked acumen and objectivity; its reputation sank ever lower.

So, in August / September 2015, when Monsanto backed out in frustration and the share price tanked, the question for the execs was, how could they get out of the hole they had dug for themselves? To start with, and for reasons that defied common sense, they planned to divest Vegetable Seeds, the star in their Seeds business; having reversed this decision within months, they now have an uphill job to re-enfranchise these employees (and Flowers – a more sensible divestment option, but the people issues are the same). In a consolidating industry, and to bulk up their Seeds business in Corn and Soy, their preferred target was Dupont’s Pioneer Seeds business, even though this would not have produced any share price premium for increasingly frustrated investors. Public documents now show that Dupont even made an offer in late 2015 to Syngenta to merge, but this was rejected because the decision had been taken to go ahead with Chemchina. Astonishingly, the preference was to retreat from being a quoted company (albeit with investors that wanted a management team capable of running the business and of setting a credible strategy), to become a private company under a Chinese state-owned enterprise. What can one say? Certainly a bold and decisive move by China, with very significant strategic benefit for its food security, and development of an international business. Good for them. For the Syngenta execs, who have repeatedly failed so badly over the last 5-6 years, and earned the contempt of employees – well, it’s been pretty much life as normal since, with the big strategic prize of an equally balanced CP & Seeds business completely missed. But who cares – they can retire with their options cashed in, and can dress this up as a great deal – even though the share price should today really be around CHF650, if the original strategy had been properly executed. But no one can talk of that in corridors where fear rules.

The series of mistakes by Syngenta executives in recent years would be comic, were they not so tragic. Weaknesses in capability and vision, and a crippling absence of character at a senior level, have led to a strategic dead end for the company, and an overwhelmingly adverse impact on hundreds of peoples’ lives. Distinguished careers? Without question, that is not true.
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