Wednesday, February 3, 2016
Coalition moving to demolish Klamath River dams without Congress’s assent
By David Siders and Ryan Sabalow
Federal officials and the states of California and Oregon said Tuesday they will press forward with plans to demolish four hydroelectric dams on the Klamath River, despite resistance from Congress.
The announcement comes after a set of demolition, water-sharing and habitat restoration agreements stalled in Washington.
By separating dam removal from a broader pact, the states and power company that owns the dams, Portland, Ore.-based PacifiCorp, will seek to move forward with their own funding – and without congressional approval.
The new accord, however, sets aside other elements of restoration and water-sharing agreements designed to settle longstanding feuds over management of the river, which flows from southern Oregon to the Pacific Ocean in Northern California. Some proponents of those agreements said they will oppose efforts to demolish the dams alone.
“It’s not OK for that to be happening absent the more comprehensive water settlement,” said Greg Addington, former director of the Klamath Water Users Association, which represents the interests of about 1,200 farms and ranches in the Klamath Basin. “It’s not what was agreed to.”
The agreements, reached by tribes, farmers and other groups, had promised habitat restoration and guaranteed Klamath Basin farmers a more reliable supply of water. But they hinged on removal of the four privately owned dams – three in California and one in Oregon – viewed as harmful to migratory fish.
PacifiCorp said it will contribute $200 million to the cost of demolition. In addition, the water bond California voters approved in 2014, while not directly mentioning the dams, included language to “remove barriers to fish passage.”
Gov. Jerry Brown’s proposed budget, released in January, included $250 million “to meet the state’s commitments under the Klamath Agreements.”
“We will move ahead as a group and start the process,” California Natural Resources Secretary John Laird told lawmakers at a committee hearing.
The dams are used primarily for hydroelectric power and provide little water storage. Farmers in the area receive their water from sources upstream of the dams. But Republicans have blocked efforts to advance legislation that included the dams’ removal.
“Tearing down four perfectly good hydroelectric dams when we can’t guarantee enough electricity to keep your refrigerator running this summer is lunacy,” Rep. Tom McClintock, R-Elk Grove, said in a written statement in December.
Rep. Jared Huffman, D-San Rafael, said Tuesday that project proponents were left with no choice but to separate dam removal from the broader agreement.
“Allowing the politics of this situation to keep standing in the way of dam removal and river restoration was unacceptable,” he said.
The management of the Klamath Basin area has long been contentious, with concerns about fish kill-offs and water for agriculture. Under the agreements, Klamath Basin farmers agreed to take less water in exchange for more reliability, with area tribes – which hold senior water rights – agreeing to share water with farmers in exchange for habitat restoration and the retirement of thousands of acres of agricultural land.
“We hoped to implement a more ambitious plan to resolve Klamath water disputes between fishing and farming communities, but Congressional Republicans blocked our efforts,” Leaf Hillman of the Karuk Tribe said in a prepared statement.
David Siders: 916-321-1215, @davidsiders, firstname.lastname@example.org
California extends mandatory water cuts despite growing snowpack
By Ryan Sabalow, Phillip Reese and Dale Kasler
The snow keeps piling up, but the rules requiring water conservation aren’t going away.
California’s drought regulators agreed Tuesday to extend water conservation mandates through the end of October. The decision came in spite of increasing evidence that El Niño is delivering better-than-average precipitation, including an encouraging measurement of the Sierra Nevada snowpack recorded just hours earlier.
The new regulations adopted by the State Water Resources Control Board mean urban Californians will have to reduce their water usage between March and October by about 23.4 percent compared with the baseline year of 2013.
That represents a slight easing of the existing mandates expiring this month, which require a savings rate of 25 percent compared to 2013. Sacramentans will be among the main beneficiaries of the relaxed rules, as the state board voted to ease requirements for hot inland communities where it takes more water to keep trees and lawns alive.
The state board voted after hearing hours of dispute and concern from stakeholders on all sides of the issue. Environmentalists argued against relaxing the rules, saying Californians need to save as much water as possible given the lingering effects of the current drought and the forecasts for longer, more frequent dry spells ahead.
Scores of local water officials countered with pleas for additional leniency, especially in winter, saying it’s tough to maintain conservation efforts when rain and snow are falling. Other local officials wanted more credit for work they’ve done to improve their supplies.
A somewhat exasperated Felicia Marcus, the state board’s chairwoman, shot back at suggestions by some local officials that the conservation mandates should be abandoned altogether while it’s raining.
“If we add up everything everyone is asking for, we’d have to give water back,” Marcus said. The board has pledged to revisit the rules in the spring, when a full accounting of the winter rain and snow can be made.
Ninety miles east of Sacramento, employees from the state Department of Water Resources unearthed fresh evidence that this season promises at least some relief from the state’s historic drought, now in its fifth year.
As a steady but moderate snow fell, DWR employees conducted the season’s second manual measurement of the Sierra Nevada snowpack at Phillips, near Echo Summit off Highway 50. The findings: 76 inches of snow, or 25.4 inches of water content. That’s 130 percent of average for the Phillips location for early February.
By comparison, the snow’s water content was only 12 percent of average at Phillips a year ago and 25 percent statewide.
“It’s a good start,” Frank Gehrke, chief of snow surveys for the DWR, told about 30 media representatives after taking the measurement. “We need to keep on this track.”
Gehrke’s measurement represented a snapshot of just one location, however. Broader electronic measurements show the snowpack throughout the Sierra is somewhat less robust: 114 percent of normal, according to DWR data.
Other indicators suggest the state is making progress against the drought, but water shortages remain. Persistent rain and snow have raised Folsom Lake levels to above normal for early February, but the far larger reservoirs at Oroville and Shasta remain comparatively empty.
An ample Sierra snowpack is crucial to ending the drought, and replenishing reservoirs through the dry spring and summer. Gehrke said the snowpack is approaching levels similar to February 2011, the last healthy winter before the drought started. One nice “Pineapple Express” would put the snowpack over that mark.
“We haven’t seen a really good one of those this time,” he said. “The snowpack is growing even in that absence.”
Later Tuesday, at the state water board hearing, Northern California water officials said they should be given more lenient regulations than other areas of the state because of the recent rain and snow. Some urged the board to let the regulations lapse completely until spring, when a clearer picture will emerge of how much rain has fallen.
Einar Maisch of the Placer County Water Agency said “there’s no longer a drought” in his service territory – a comment that drew gasps of disbelief from some board members. Shauna Lorance, of the San Juan Water District in suburban Sacramento, said enforcing conservation is hard when Folsom Lake is so full that water likely will be released soon for flood control purposes.
“Our customers are going to roll their eyes, and we’re going to lose trust,” Lorance said.
Meanwhile, environmentalists warned the board against relaxing the existing conservation standards. “I would hate to have those efforts lose steam going forward,” said Kyle Jones of the Sierra Club California. “We don’t know how long this drought is going to last.”
The current rules are based on historical per-capita consumption rates and tend to punish hot, dry areas like Sacramento. The new rules make allowances for climate differences and give credits to communities that have invested in “drought-resilient” new water supplies.
In the Sacramento area, where the conservation mandates are among the toughest in the state, most agencies are expected to see targets fall by 3 percentage points. An agency that’s had to slash consumption by 36 percent, for instance, would now have to meet a 33 percent savings rate.
Agencies that don’t meet their mandates could be fined.
State board officials were wary of relaxing the standards too much. As it is, they’re concerned that conservation efforts currently in effect won’t meet the 25 percent threshold ordered by Gov. Jerry Brown.
Earlier Tuesday, the board announced that conservation in the state slipped to 18.3 percent in December, the lowest savings rate since mandatory conservation took effect last June. It was the third straight month that the savings rate fell below 25 percent, although the cumulative savings since June totaled 25.5 percent, just above the governor’s order.
Katheryn Landau, with the water board’s office of research, planning and performance, said she was “cautiously optimistic” the savings rate would remain above 25 percent through the end of February, when the current mandates expire.
Savings rates were considerably higher in the summer, when conservation largely amounted to cutting back on outdoor watering. Officials say it’s harder to achieve major year-over-year savings in winter because residents have to reduce their indoor water use.
Sacramento-area residents continued to be among the most diligent in the state at saving water. The area’s conservation rate averaged 26 percent in December, according to data compiled by the Sacramento Regional Water Authority. All told, Sacramentans have cut water use by 33 percent since June, the authority said.
Ryan Sabalow: 916-321-1264, @ryansabalow, email@example.com
Los Angeles Times
Can the Sacramento Delta survive more ‘regulatory flexibility’?
By Doug Obegi
The state and federal Endangered Species Acts were created to prevent the extinction of our native fish and wildlife, and they’ve been tremendously successful. Yet despite these laws, California is on the verge of killing off some of its native salmon and other fish in the Sacramento-San Joaquin River Delta and San Francisco Bay, the largest estuary on the West Coast of the Americas.
Not just fish are at risk. Our state’s salmon industry is economically crucial to coastal communities and thousands of fishermen and fishing families. Salmon are also essential to the coastal ecosystem; for example, killer whales that migrate off California are threatened because of the decline of salmon, their main prey.
And when the rivers that feed the delta are unable to provide the cold, clean water that salmon require, the water there is also often unable to meet the needs of humans. During California’s historic drought, as fish populations have crashed, toxic algae blooms have begun to proliferate and in some areas, delta water has turned too salty for irrigation or consumption.
The drought is one important driver of this destruction, but it isn’t the only problem. Bad water management — in the name of innocuous sounding “regulatory flexibility” — has been weakening environmental protections and pushing the delta toward disaster.
Virtually no winter run Chinook salmon, protected under the Endangered Species Act, survived in the Sacramento River in 2014 or in 2015. Fall run Chinook salmon, a separate, unlisted species that is the backbone of thousands of fishing jobs all along the West Coast, also suffered huge losses. Because salmon have a three-year life cycle — and we’ve now killed so many in the river — another year of sacrificing the environment to other interests could be the last straw.
In dry years, built-in regulatory flexibility automatically reduces the share of water that flows into the delta, allowing more of it to be diverted. Over the last two years, however, agencies have waived and weakened water quality standards and other environmental protections even further in order to provide water for interests such as agribusiness. From 2014 through 2015, about 1.35 million acre-feet of water (more than twice the amount of annual water use in Los Angeles) that should have helped protect delta fish, wildlife and ecosystems was diverted.
Such shortsighted water strategies can have long-term consequences. How we manage the difficult challenge of apportioning water supplies during droughts may have repercussions that last for decades. For example, the operation of Shasta Dam during the 1987-92 drought caused a massive kill off of winter run Chinook salmon in the delta and in the Sacramento River, and led to its initial listing — and new environmental regulations — under the Endangered Species Act.
Still, Republicans in Congress are trying to use the drought as an excuse to weaken, suspend or even repeal protections for salmon and other endangered species. The House has passed four bills (some before the drought) and pushed numerous riders on other legislation in order to overturn state and federal regulations that balance delta water use for environmental as well as other purposes. So far, the bills have been stopped in the Senate.
California’s voters want to keep it that way. In September, the USC Dornsife/Los Angeles Times poll found that a majority of voters statewide oppose suspending environmental protections for fish and wildlife during the drought. They see through this one-sided approach and understand that agriculture and the environment both require that we invest in sustainable water supplies.
Even if rain and snow continue in California, storage in the state’s reservoirs is so low, and the health of the delta is so imperiled, that Congress needs to encourage less water diversion — less pumping — from the Sacramento-San Joaquin watershed.
California’s hotter and drier future means that water will remain a precious and limited resource. The best strategy for coping with it isn’t the ruination of the delta and the salmon fishery. It’s doing what Los Angeles is doing — aggressively moving to cut water imports from the delta by 50% by 2025, conserving water and rethinking local infrastructure to capture rainwater and improve groundwater. Such actions will increase the reliability of water resources, create local jobs and protect the environment and economy.
We can have both a healthy environment and economy — including agriculture. But if we continue to sacrifice environmental protections instead of investing in long-term water solutions, we will probably have neither. And that will affect all of us.
Doug Obegi is a senior attorney with the Natural Resources Defense Council’s water program.
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Bee hives such as these were recently stolen in Sutter and Glenn counties.
By Andrew Creasey
Nearly 300 bee hives were stolen from a Sutter County apiary late Friday, the second such theft in the past week in the Sacramento Valley.
The victims suspect another beekeeper was the culprit.
At Sprague Apiaries in Sutter County, it appeared a forklift was used to load two trucks with 280 bee hives, which are used to pollinate certain orchard crops, including almonds.
A week ago, an identical technique was employed to steal 240 hives from C.F. Koehnen and Sons in Glenn County.
The thefts were likely motivated by the strong market for bees used in orchard pollination, said Jeri Sprague, co-owner of Sprague Apiaries.
“Statewide, there is a tremendous shortage of bees for almond pollination, so the price per box has gone up,” Sprague said.
Sprague suspected another beekeeper stole her hives due to the timing of theft, which coincides with the start of the pollination season for bees in almond orchards.
Kamron Koehnen, owner of C.F. Koehnen and Sons, shared her suspicion.
“It’s a brutal year for bees. Everything is dying, and all these people down south are coming up way short in their numbers,” Koehnen said. “People are trying to meet their obligations at our expense, I guess. I’m sure that is what is driving this. There’s no doubt in my mind it was another beekeeper.”
Apiaries such as Sprague and C.F. Koehnen and Sons rent bee hives to almond farmers for the growing season and pick them up after it’s complete.
At Sprague Apiaries, the cost to rent a single hive is $185, meaning the business will lose more than $50,000 in revenues this year, Sprague said.
“It’s disheartening that people would do this,” Sprague said. “They don’t realize, or don’t care, how much of a struggle this will put on our business. A $50,000 loss in our annual income will be huge. It will be hard to make up for.”
For Koehnen, the theft will mean a loss of about $45,000 in rental revenue and a total loss of about $100,000, given the total worth of the hive.
“In the big picture, it wasn’t a huge hit, but I’m not any less angry that it happened,” Koehnen said. “You don’t like to be violated, and that’s a pretty huge violation.”
Both apiaries filed reports with law enforcement, but Koehnen isn’t holding out hope that his hives will be found.
“It would be an absolute act of God if they were found,” Koehnen said. “But there’s nothing you can do. You just write it off and go forward.”
CONTACT reporter Andrew Creasey at 749-4780 and on Twitter @AD_Creasey./firstname.lastname@example.org
Review reveals problems protecting workers from pesticides
By Jason Dearen
BELLE GLADE, FLA. – Dozens of farmworkers looked up at the little yellow plane buzzing over the Florida radish field, a mist of pesticide falling from its wings.
Farmworkers are supposed to be protected by government rules regulating exposure to toxic farm chemicals. But in this case, the breeze pushed the pesticide over the crew in a neighboring field, where it fell mostly on women, including at least one who was pregnant.
“I smelled a strong odor and started feeling bad,” worker Maria Garcia later told a state investigator. “I had a headache, itchy eyes and threw up.”
The health investigator assigned to the case said more than a dozen workers showed symptoms of pesticide poisoning, and also found evidence that the farm and crop-dusting contractor may have violated federal farmworker safety laws.
An Associated Press review of federal and state enforcement data and other records revealed that the pesticide-safety system is riddled with problems: Investigations often take years to complete and result in few penalties. Written warnings are common, fines rare. Compliance is sometimes voluntary, not required. And worker anonymity can be compromised, making employees reluctant to report violations.
The agriculture industry defends the system, saying the low numbers are a sign that farms are doing a good job of protecting workers.
President Barack Obama’s administration recently adopted tougher farmworker protections after 20 years of debate and fierce resistance from the chemical and agricultural lobbies. The more stringent regulations adopt annual training requirements, safeguards to keep children workers out of the fields and stronger penalties for companies that retaliate against workers who report violations. However, when they take effect in 2017, all of the new rules will still rely on the existing enforcement system.
Adding to the troubles are the regulators themselves. In all states except California, enforcement of federal pesticide-safety laws is managed by the same agencies that promote agricultural industries.
The Florida workers fell ill on Oct. 14, 2014, in Belle Glade, a farm town near Lake Okeechobee where the motto is “Her soil is her fortune.” They had been moved at the last minute to a celery field owned by Duda Farms. Rains the previous night had made the fields they were supposed to plant too soggy.
That was not communicated to the crop-duster pilot, who should have waited to spray a “restricted-use” pesticide called Bathyroid XL, records show.
Bathyroid XL is listed as a probable human carcinogen, according to the U.S. Environmental Protection Agency. Studies on rats showed some neurological effects, but the results of long-term exposure on people are not known. As a restricted-use agent, it is considered one of the more toxic pesticides available to American farmers.
Twelve women including Garcia and one man were hospitalized. Many were released and cleared to go back to work after a few hours. But some, including the pregnant worker, required follow-up medical screening for lingering symptoms, according to state health records about the incident.
Despite the findings about pesticide poisoning and evidence of violations, a state investigation resulted in no punishment for the farm and, after more than a year, only the small fine for the crop duster, according to the case file obtained by the AP through a public-records request. Workers contacted by the AP said they were never interviewed.
“The Florida system is terribly broken,” said Greg Schell of Florida Legal Services, a national expert who has been litigating farmworker cases for decades. “Unless you see somebody being sprayed, it’s your word against the employer.
Florida is the nation’s second-largest agricultural state, with more than 47,000 farms. Inspectors conducted 785 worker-protection inspections in 2014, the last year for which data was available. That’s more inspections than any other state in the region, yet they issued only seven fines for a total of $11,400.
The numbers are comparable in other states.
In tobacco-growing North Carolina, only three fines were levied in 2014 against farms for violating pesticide protections. In the Cotton Belt states of Georgia and Alabama, there were no fines, according to data gathered by the AP.
It’s not clear how many workers get sick from pesticides each year. No one gathers comprehensive data.
A program run by the National Institute of Occupational Safety and Health identified 5,200 workers with acute pesticide-related illness, and eight deaths, in 11 states between 1998 and 2006. Those cases included only poisonings confirmed by doctors.
Using that data and other sources, the EPA estimates that the nation’s 2 million farmworkers suffer 10,000 to 20,000 cases of doctor-diagnosed pesticide poisoning in the U.S. every year.
Low enforcement numbers also reflect workers’ fear of reporting problems.
Many field hands have come to the U.S. illegally or are here on worker visas, and their immigration status is controlled by their employers.
Until a few years ago, Louisiana pesticide inspectors sometimes required farmworkers to travel hundreds of miles to Baton Rouge to lodge pesticide complaints in person. That practice was halted only after litigation and an EPA investigation that the state fought.
After the incident in Belle Glade, some of the Florida workers sprayed by the crop duster were advised by supervisors against taking legal action, according to state documents obtained by AP.
“They were told ‘You would never find a job in agriculture again. Their husbands may also be fired, and it would take years to get a settlement,'” said Antonio Tovar, the Florida health department investigator on the case.
Luis Martinez, one of the workers in the fields that day, said a lawyer and the safety officer for the farm labor contractor hired by Duda Farms all discouraged him from making a complaint. The company also asked him to take a drug test to prove the symptoms he experienced were not from marijuana or other drugs.
“I feel so bad,” Martinez said, “because I have no rights because I have no money and can’t afford a lawyer.”
Defenders of the agriculture industry say the lack of fines and violations in Florida and other places shows a high level of compliance, not lax enforcement.
“The culture has changed. There may be a few bad apples, but they are few and far between,” said Gene McAvoy, who runs state pesticide safety trainings for farm supervisors in Florida.
Farm spokeswoman Donna Duda denied that anyone from the company had spoken to them. She said the company has complied with state investigators and was reviewing its policies after reading the allegations in Tovar’s report that workers were pressured not to file complaints.
Jose Ojeda of Martinez & Sons Trucking, the contractor in charge of the workers that day, denied his staff discouraged workers from filing a complaint.
The Florida Department of Agriculture and Consumer Services never interviewed Martinez or any workers about the retaliation or intimidation claims, despite a tip from the health inspector that some workers were talking about it.
In a statement, the agency denied being told about the intimidation allegations and said it would have investigated if it had known. Officials would not answer other questions.
Other workers contacted by AP at their homes in Belle Glade did not want to be interviewed, with one saying she did not want to make trouble.
The EPA said the numbers may be low because workers are reluctant to file complaints for fear of deportation. They also say retaliation violations often are not caught during the routine, random inspections.
Nationwide, few of those violations are ever filed. Data from 2006 to 2013, the years the EPA has available, show that only 13 violations involving companies that threatened to retaliate against employees were reported nationwide — none in any Southern states.
When workers do come forward, they face a yearslong process that often ends with nothing but a warning for the farm. In other cases, people who complain are sometimes put in professional exile.
North Carolina tobacco worker Cayetano Dominguez-Rosales complained to state investigators when 12 workers on his crew got sick in 2010 after witnessing pesticides being sprayed in a field that was no more than 40 paces away. Records show they all sat down and felt dizzy and nauseas. While heat stroke could have been to blame, it was unusual that so many workers fell ill at the same time, he said.
Dominguez-Rosales said his supervisor told him he would take him to the hospital for $20, a violation of federal law, according to state investigative documents. A clinic worker transported him and a fellow worker to the hospital five days after the incident.
After the hospital trip, he returned to work and was told to sign a “voluntary quit” paper giving up his job. He had worked for 15 years on North Carolina tobacco farms and never fallen ill, he said, but the incident left him without work. He returned to Mexico.
Nearly a year after he left, a state investigation issued a warning to the farm.
Pesticide investigations in North Carolina can take up to two years, and the vast majority nationwide end in warnings.
“A warning just says ‘We’re not going to hold you responsible for these actions,'” said Caitlin Ryland, an attorney at Legal Aid of North Carolina. “Really, there’s no teeth at all in that law.”
Delays in North Carolina investigations come largely from staffing issues, said Patrick Jones, deputy director of pesticide programs at the state Department of Agriculture and Consumer Services. The division shares one lawyer from the state attorney general’s office with all other agriculture departments. Jones said a new attorney has been appointed, and pesticide cases are expected to be a top priority.
In the future, technology may offer new ways of tracking workers’ potential exposure and monitoring their blood for toxins. Some ideas are being tested in California and Washington state.
“It’s a problem of scope,” said Dr. Thomas Arcury, director of the Center for Worker Health at Wake Forest Baptist Medical Center. Advanced testing “is a great idea, but it would be a fairly expensive proposition, and only a handful of labs can do this with any reliability.”
Associated Press video journalist Josh Replogle contributed to this report.
Wall Street Journal
Syngenta Agrees to $43 Billion ChemChina Takeover
By John Revill In Basel and Brian Spegele
Government-owned China National Chemical Corp. capped a string of acquisitions with a $43 billion cash offer to buy Swiss pesticide and seed company Syngenta AG, in the most ambitious foreign takeover attempt by a Chinese company to date.
Syngenta said Wednesday that the agreed offer by the Chinese company, commonly known as ChemChina, amounted to $465 a share, plus a special dividend of 5 Swiss francs ($4.91) a share to be paid immediately before the deal’s closing.
Syngenta shares jumped, rising 6% on the Zurich bourse by early afternoon on the news of the offer, worth 480 francs a share.
“We have a very attractive offer on the table and we are putting it to our shareholders,” Syngenta’s interim Chief Executive John Ramsay said in an interview with The Wall Street Journal.
The proposed deal, which requires approval from Syngenta shareholders, sends a signal that despite sharp drops in global equity markets driven by concerns over economic growth, particularly in China, companies still see opportunities for expansion through acquisitions.
The initial reaction from shareholders was positive.
“We think the offer is fair and would be inclined to tender our shares,” said Mark Evans, a fund manager at London-based THS Partners.
Markus Baechtold, at Luzerner Kantonalbank, said the ChemChina deal was better because it was all cash and there were no job cuts, with Syngenta’s headquarters staying in Switzerland. “The price is attractive, I would probably offer my shares,” he said.
The takeover would help ChemChina grow Syngenta’s business in China and other emerging markets, and help to gain a foothold in the U.S. Acquiring Syngenta’s intellectual property is also attractive as the Swiss company develops genetically engineered seeds that may help further open the tightly-regulated Chinese market for biotech crops.
Behind the recent wave of Chinese outbound investment is strong support for deals by the central government. While ChemChina Chairman Ren Jianxin says he is motivated by profit and not politics, his company has tapped government funds to support its deal-making across Europe.
Last year when ChemChina announced an agreement to buy Italian premium-tire maker Pirelli for around $7.7 billion, it quietly secured funding from an overseas investment vehicle championed by Chinese President Xi Jinping.
Greater overseas deal-making with support of the central government is part of a broader effort under way to export vast domestic overcapacity in industry. Mr. Xi’s signature “One Belt, One Road” initiative aims to open up new markets from Central Asia to Europe for Chinese companies that previously focused at home.
At a packed news conference at Syngenta headquarters in Basel, Mr. Ren began a charm offensive by saying how much he admired Switzerland and the products made there.
To seal the deal, the companies now have to cross potentially high regulatory hurdles in the U.S.–about a quarter of Syngenta’s sales come from North America—and elsewhere.
As well as antitrust authorities, a U.S. interagency committee known as CFIUS has the power to block deals that pose a threat to U.S. national security. Last month, Philips NV said it was terminating its $2.8 billion deal to sell its lighting-components and automotive-lighting business to Go Scale Capital, an investment fund led by Chinese venture-capital firm GSR Ventures.
Syngenta Chairman Michel Demaré said the company wasn’t obliged to file an application with CFIUS, but decided to do so because it thought this was good corporate governance. He said he didn’t expect any major obstacles there or in the European Union or Switzerland.
“I believe it is important to emphasize, not like 99% of deals announced today which are about synergies, this is a deal about growth and innovation. I believe there is enough to convince the EU regulator and the Swiss political world that this is an excellent deal,” he said.
The offer comes after months of uncertainty over the future of Syngenta, which was earlier pursued by U.S. seed giant Monsanto Co.
After Monsanto’s failed, unsolicited approach to the Swiss company, ChemChina decided it would only pursue a deal with Syngenta on a friendly and agreed basis, according to a person familiar with the situation.
The management teams of ChemChina and Syngenta first met in Germany nearly a year ago, according to the person. The discussions between ChemChina and Syngenta accelerated in December. Syngenta’s board gave the go-ahead for Syngenta’s management to begin negotiating a deal with ChemChina in early January and the two sides proceeded with a rapid due-diligence process afterward, according to the person.
For Syngenta, the deal holds the prospect of new capital and greater access to the huge China market, while for ChemChina, it gives the company access to Syngenta’s advanced biotechnology for developing seeds.
Syngenta would remain based in Switzerland while the existing management team would continue to run the company. Mr. Demaré is set to be replaced by ChemChina chief Ren Jianxin upon the deal’s completion. Mr. Demare, who has been at Syngenta since 2012, will stay on as vice chairman.
The global seed and pesticide sector already in has faced consolidation after DuPont Co. and Dow Chemical Co. announced plans to merge in December.
Syngenta said it expected to conclude the deal with ChemChina by the end of 2016. Dyalco, J.P. Morgan, Goldman Sachs and UBS advised Syngenta on the transaction. HSBC Holdings served as the adviser to ChemChina.
This appears to be the most ambitious foreign takeover attempt by a Chinese company yet, and comes after months of uncertainty over the future of Syngenta, which was earlier pursued by U.S. seed giant Monsanto. And now comes the tricky bit, the companies must now surmount potentially fraught regulatory hurdles in the U.S. and elsewhere.
Syngenta Chairman Michel Demare said: “In making this offer, ChemChina is recognizing the quality and potential of Syngenta’s business.” And Syngenta’s interim chief executive John Ramsay said: “We have a very attractive offer on the table and we are putting it to our shareholders.” It’s probably fair to say the senior executives at the Swiss seeds and pesticides maker are onboard with this deal, with the all cash nature of the offer no doubt a help.
ChemChina’s offer to buy Syngenta for $43 billion prompts UniCredit to downgrade the Swiss company’s bonds to underweight from marketweight due to the unclear refinancing of the acquisition. It sees a high risk of Syngenta bearing a large part of the takeover price during the refinancing process. The influence of ChemChina on Syngenta’s strategy is also a concern, but the Chinese group will likely aim to keep its subsidiary in investment-grade territory. UniCredit anticipates Syngenta bond spreads widening Wednesday and to remain volatile in coming months, given than regulatory and political obstacles to the deal remain
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Write to John Revill at email@example.com and Brian Spegele at firstname.lastname@example.org