What's Next For Syngenta?

Since the recent news of Monsanto Co MON’s decision to drop its $46 billion bid for Syngenta AG SYT, Syngenta shareholders are left wondering what’s next for the company. In a new report, Bank of America analyst Laurent Favre discusses the path forward for Syngenta in a difficult agriculture environment.

What happened?
Monsanto’s $46 billion bid this week for Syngenta was a slight improvement on a previous offer, but Syngenta rejected the bid and said that it “significantly undervalued the company and was fraught with execution risk.” Among the issues that Syngenta reportedly had with the offer were revenue and cost savings estimates and tax inversion risks.

What’s next?
For now, Bank of America remains bullish on Syngenta, despite the fact that Favre believes the M&A thesis is out the window. “MON’s decision to walk away after SYN turned down the upped offer leaves us thinking that M&A and activism optionalities are unlikely to apply to the investment case for the foreseeable future,” Favre explains.

Instead, the case for owning Syngenta now relies on the valuation of its stock. Bank of America sees little downside to current levels based on the company’s 4.5 percent estimated 2016 free cash flow yield and 3.7 percent dividend yield.

Initiation
In the report, Bank of America initiates coverage on Syngenta at Neutral, but sees about 8 percent upside to the stock from current levels. The firm believes that the rejection of the Monsanto bid along with the board’s recent “commitment to accelerate shareholder value creation” will put pressure on management to act aggressively to keep shareholders happy.