Agrochemicals Sector Consolidation: BASF's Purchase of Cyanamid Marks a Turning Point

Strategic Insights -

The purchase of Cyanamid by BASF for $3.8 billion marks the end of a round of intense consolidation in the agrochemicals sector. Until the Asian-led downturn in global agriculture, investors viewed agrochemicals as a high-value chemical sector, similar to pharmaceuticals. However, with virtually no growth in the $32 billion agrochemicals market, most companies have decided that the life science model, which promised research synergies between pharmaceuticals and agrochemicals, is not yielding the expected results. The consolidation has largely been driven by a desire to divest underperforming businesses, such as Cyanamid, that dilute earnings growth in pharmaceuticals. Diversified chemicals companies like DuPont, Dow Chemical, and Bayer are now finding themselves squeezed between a new tier of global agrochemicals groups and niche companies.

Key Takeaways:

  • The agrochemicals market is experiencing a decline in growth, with the $32 billion market witnessing almost no growth.
  • The life science model, which promised research synergies between pharmaceuticals and agrochemicals, has not delivered the expected results.
  • The consolidation in the industry has led to the formation of a new tier of global agrochemicals groups, with the top four players controlling about 60% of the global market.
  • Mid-sized groups like DuPont, Dow Chemical, and Bayer are facing limited options for strategic growth.
  • The debate over genetically modified foods will be a key factor in the future of the agrochemicals sector, with some analysts predicting a new scramble if consumer opposition dies down.
  • The purchase of Cyanamid by BASF has left Bayer with limited options, having failed to acquire the company.
  • Pharmacia & Upjohn's planned merger with Monsanto may make available the 80% shares of Monsanto, providing another opportunity for companies that missed out on Cyanamid.

Statistics:

  • The agrochemicals market is worth $32 billion.
  • The top four players in the industry - Syngenta, Aventis, BASF, and Monsanto - control about 60% of the market.
  • Aventis had agchem sales of €4.06 billion (approximately $3.93 billion) in 1998.
  • The Syngenta deal, if approved, will control 24% of the market.
  • DuPont, Dow Chemical, and Bayer account for a significant share of the mid-sized market.

Sources:

  • "Agrochemicals Sector Consolidation: BASF's Purchase of Cyanamid Marks a Turning Point"
  • Forbes
  • Reuters