For a fairly mature industrial sector, the agrochemical industry has had a pretty eventful past ten years.

"Companies have been coming together, splitting up, jilting partners at the altar and cold-bloodedly disposing of rivals..." Download Figure 1

Indeed, the convoluted machinations that the industry has put itself through put many soap operas to shame. Companies have been coming together, splitting up, jilting partners at the altar and cold-bloodedly disposing of rivals, such that only half of the major US and European agrochemical companies are still standing (see Figure 1).

Ironically, it was the maturity of the industry that drove much of this frenetic activity. In the 1970s, the global agrochemical market was growing at a healthy (but hardly spectacular) 8% a year in real terms, but by the late 1990s this growth had all but stopped. So the quickest and easiest way for agrochemical companies to grow (and please their shareholders) was through acquisitions or mergers.

The first rumblings began in the early 1990s, after the global agrochemical market’s annual growth rate fell to around 3% during the 1980s. In 1993, Shell, the UK/Dutch oil and chemical company, sold its agrochemical business to Cyanamid, which was then acquired by the US pharmaceutical and chemical company, American Home Products, in 1994. In the same year, the German chemical companies, Hoechst and Schering, combined their agrochemical businesses to form AgrEvo as a stand-alone joint venture. Then, in 1996, the Swiss chemical companies, Ciba and Sandoz, merged to form Novartis, which at that time had the world’s largest agrochemical business in terms of sales.

But the heady times really kicked off at the end of 1999 and into 2000, when two huge mergers shocked and subsequently transformed the global agrochemical industry. First off, Hoechst and the French chemical company Rhône-Poulenc agreed to merge their agricultural and pharmaceutical businesses (including AgrEvo) to form Aventis, which came into being in December 1999.

But the reign of Aventis’s agrochemical division, called Aventis CropScience, as the world’s largest agrochemical business lasted less than a year. For in November 2000, Novartis and Zeneca, which was formed in 1993 when the British chemical company ICI spun off its agrochemical, pharmaceutical and speciality chemical operations, combined their agrochemical businesses to form a new stand-alone entity called Syngenta.

In fact, by the end of 2000, Aventis CropScience had been overtaken by Syngenta and Monsanto and was now the third largest agrochemical business in terms of sales. However, these three companies were beginning to pull ahead of the other major agrochemical companies. Aventis CropScience’s 2000 sales were 60% higher than those of Dow AgroSciences, which was the fourth- largest agrochemical business.

To try to catch up with the top three, the other major agrochemical companies decided to acquire some of the smaller companies. In 2000, BASF acquired Cyanamid from American Home Products for $3,800 million, which was the largest acquisition in BASF’s corporate history. Then, in 2001, Dow AgroSciences (through its parent company Dow Chemical) acquired the agricultural business of US chemical company Rohm and Haas for approximately $1,000 million., In 2003, DuPont acquired the 50% stake it didn’t own in its joint venture with Griffin, which essentially meant that it acquired Griffin.

But sales growth was not the only reason behind some of these mergers. Novartis, Zeneca and Aventis were all formed with the express intention of becoming ‘life science’ companies. The idea was that these huge multinational companies would be able take advantage of the overlap between their pharmaceutical and agrochemical divisions, especially in terms of research.

Unfortunately, the supposed benefits failed to materialise, with the companies finding that their pharmaceutical and agrochemical research activities were too dissimilar to offer much assistance to each other. In addition, the agrochemical divisions became somewhat of a drag on the pharmaceutical divisions, which were able to generate far higher profits.

So a few years after being formed, all these life science companies hived off their agrochemical divisions. Novartis and Zeneca formed Syngenta, while in 2002 Aventis sold its Aventis CropScience division to Bayer for €7,250 million, which was the largest acquisition in Bayer’s corporate history. Subsequently, Bayer set up its enlarged agrochemical division as an independent entity called Bayer CropScience.

Monsanto also flirted with the concept of the ‘life science’ company. Indeed, Monsanto has probably had the bumpiest ride over the past ten years, even though Figure 1 implies that it hasn’t really changed. In the mid-1990s, Monsanto was a chemical company with three main divisions: chemicals; pharmaceuticals; and agrochemicals. However, in 1997, it spun off its chemical business to form the stand-alone company, Solutia, and became a life science company.

In 1998, it contemplated a merger with American Home Products, but this was eventually called off. Then, in December 1999, it announced that its pharmaceutical business would merge with the Swedish pharmaceutical company, Pharmacia & Upjohn. Its agricultural business (retaining the Monsanto name and its headquarters in St Louis) would become an autonomous subsidiary of the new company (Pharmacia Corporation).

This merger was completed in April 2000, and then in October 2000 Pharmacia sold 14% of its stake in Monsanto on the New York stock exchange. Pharmacia planned to retain its remaining 86% stake for two years before making a decision on Monsanto’s future. However, in July 2002, Pharmacia announced that it was being acquired by the US pharmaceutical giant, Pfizer. As a result, in August 2002 it distributed its entire ownership of Monsanto common stock to its shareholders by means of a tax-free dividend. On 13 August 2002, the ‘new’ Monsanto became a 100% publicly-traded company, dedicated solely to agriculture.

So in the course of just four years, the global agrochemical industry went through an intense period of consolidation, which resulted in the number of top-tier companies (with sales above $1,000 million) falling from ten to six. It also led to three of the second-tier companies being swallowed up by their larger rivals. So the question is: did all this consolidation benefit the surviving companies and have the desired effect on sales growth?

Well, the mergers and acquisitions seem to have worked better for some companies than for others (see Table 1), with the smaller acquisitions often delivering better results than some of the mega-mergers.

This strongly suggests that seeds and GM crops have had more of an influence on the companies’ sales growth than their mergers and acquisitions (although the mergers might have helped the companies invest in these high growth areas). Indeed, these mergers and acquisitions have probably had more of a direct effect on the sales growth of some of the second tier agrochemical companies.

This is because many of the smaller agrochemical companies, especially those primarily selling generic pesticide products, gained a number of benefits from the consolidation of the larger companies. These included the extra business space created by the consolidation and the large number of pesticide products subsequently divested by the major companies.

These product divestments were both forced on the major companies by the EU and US competition authorities – to prevent them gaining a monopoly in specific pesticide classes – and the result of the merged companies’ desire to slim down their product portfolios. The companies divested many of these pesticide products to the two largest generic pesticide companies – Makhteshim-Agan Industries (MAI) and Nufarm. These product acquisitions have helped MAI and Nufarm’s sales to double since 1998 and both companies now generate annual sales of well over $1,000 million.

So what’s going to happen to the agrochemical industry over the next ten years? Well the top six agrochemical companies are unlikely to contemplate any further consolidation, both because of the expense and because any large merger or acquisition could well be blocked by the regulatory authorities. According to Philip Jarvis, the editor of Agrow Magazine, this is leading the top six to explore the benefits of co-operation, as shown by last year’s technology swaps and joint ventures between Syngenta and DuPont and the recently announced Monsanto/BASF deal.

But that doesn’t mean that the agrochemical soap opera is about to end, for some of the second tier companies are becoming increasingly acquisitive. In addition to recent purchases by MAI and Nufarm, India’s United Phosphorus has recently acquired several generic pesticide companies, including Cequisa, Reposo and SWAL, and towards the end of 2006, United Phosphorus agreed to acquire Cerexagri, thereby propelling it into the mid-tier of agrochemical majors.

Just because an industry is mature doesn’t mean it has to be boring.

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