Describing FMC as “under the radar,” admittedly, is probably a stretch. But in a snap of the fingers, FMC upped its game and aligned itself with the biggest names in ag.
It’s not only buying up DuPont’s crown jewel insecticides and cereal herbicides, but the game-changer: its robust pipeline and R&D capabilities.
“Probably a year or 18 months ago, once we became aware of the mega-mergers and those came to fruition, we made it very clear we wanted to play a part. We have wanted to grow our ag business for some time. We asked, ‘how could we get back into basic discovery given our size?’ Lo and behold, the DuPont assets came up for sale,” Mark Douglas, President, FMC Agricultural Solutions, said in an interview.
No doubt FMC has been stepping up R&D spending in recent years, but it has, until now, sat on the sidelines when it came to discovery, deferring to other players for its new molecules. While the nine actives in FMC’s current pipeline are late-stage, the 15 it is gaining from DuPont are nearly all early-stage, with a significant chunk of them being herbicides and fungicides, rounding out its portfolio and securing longer-term revenue sources. DuPont’s library of 1.8 million compounds now at FMC’s disposal is also of no small significance.
“I think (accelerated R&D) is going to be the nature of consolidation which is taking place in the industry — we are going to have companies that will be more and more innovative bringing new technology. This was the way for us to be competitive under the new market structure,” Paul Graves, FMC Executive Vice President and Chief Financial Officer, said.
FMC has been spending slightly under 6% of annual revenue on R&D. The DuPont asset acquisition will bump it up to more than 8% going forward, which would translate to nearly $300 million a year, Chief Executive Pierre Brondeau said on a conference call.
It made sense that it was FMC that flipped the script, according to industry insiders, who pointed out the Philadelphia company’s ambitious strategy and nimble maneuvering throughout the ag downturn. Case in point: in 2016, the Ag Solutions business managed to boost profits by 10% as it focused on maintaining price and terms rather than volume. This came on the heels of its $1.8 billion purchase of Cheminova in 2015, which furnished it with direct market access in key countries in Europe and improved its customer reach in India, Australia, and Latin America.
By contrast, the somewhat more plodding DuPont has struggled with its crop protection business for years. One source, who asked to remain anonymous, commented that the deal is a major win not just for the company but for growers and retailers, the majority of whom he said would “prefer to deal with FMC” than DuPont for this very reason.
Jim Borel, who retired in 2016 from DuPont, where he oversaw DuPont Pioneer, Crop Protection and Nutrition & Health businesses, believes the Dow-DuPont merger is a good thing not only for the manufacturing industry and crop protection players, but also farmers. “This is going to create an even stronger global competitor in the crop protection industry, which is a very competitive market. The great news is, the merger is one that will continue to be very committed to research. And when coupled with the FMC deal, it will assure what farmers need: a stream of new products.”
From an ag retailer’s perspective, Karl Hensley, Senior Vice President Agronomy with Central Valley Ag, said he views Dow and DuPont spinning off crop protection assets to appease European regulators fortuitously, in the sense that he expects it to benefit both the future of chemistry and the customer-facing side of business.
FMC “probably has a leg up on the mega-mergers,” he added, because it won’t need to struggle to reestablish relationships and manage shuffling of various customer-facing functions as much as say, a ChemChina-Syngenta, which carries the burden of merging divergent corporate cultures.
“I feel like DuPont has run their chemistry business and marketing program fairly tight as far as representation in our geography,” Hensley said. “As a retailer, I think our relationship is probably better with FMC than it has been with DuPont. I look at it as an opportunity for us.”
As the industry has dwelled on seed traits and technology spending for the last several years and pulled back on research outright feeling the pinch of the ag economy, a renewed push in chemistry R&D is long overdue.
“It’s been a long time since we’ve had entries into the marketplace with new chemistries. So, hopefully after the mergers and spin-offs are all completed, we will see a reemphasis on new products and development, especially in new chemistry and means of controlling hard-to-control weeds to give us different options,” Hensley said.
On the international side, the deal is also poised to support FMC’s supply chain and manufacturing capabilities, as it will add four active ingredient manufacturing facilities in China and North America and 10 formulation sites in key markets.
Brondeau noted that the deal will more than double FMC’s revenue in India and China and increase the number of countries where it has revenue of at least $100 million from three to 10. “It will also give us a meaningful position in cereals and enhance our position in crops such as vegetables, rice, and soybeans.”
Another bonus for FMC lies in the revenue ramp ahead. Rynaxypyr’s patent protection doesn’t expire until 2022 and Cyazypyr’s in 2024. These two plus indoxacarb are expected to command $1.2 of the $1.5 billion FMC sees the deal adding to revenue in the first year, with cereal herbicides accounting for the balance.
“It fits so well for us,” Douglas commented on the DuPont portfolio additions. Not only do the new actives give it a better balance of pre- and post-emerge as well as selective and broad-spectrum applications, but it also expands its offering from a geographic standpoint, particularly in Asia. “This improves our geographic balance with each of our four regions contributing approximately 25% of annual revenue, which will help us smooth out regional volatility.”
Douglas added, “This is an important move for FMC and the crop protection industry given the large consolidations taking place. With FMC, growers will have another choice with a top-tier, research-based company bringing them novel crop protection technologies.”