FRANKFURT (Reuters) - Syngenta SYNN.VX has said a $2 billion break-up fee that unwanted U.S. suitor Monsanto (MON.N) has pledged to pay if its proposed $45 billion merger failed would only apply in limited cases, leaving its shareholders exposed to the bulk of regulatory risks.
Swiss Syngenta, the world's largest maker of farming pesticides, told Reuters that based on its legal interpretation of Monsanto's proposal, the payment would only be triggered if so-called horizontal antitrust concerns were to trip up the deal. Monsanto has rejected this interpretation.
Antitrust experts refer to horizontal market power in the context of a merger of companies that have substitutable or directly competing products -- the standard case for regulators to intervene.
Other concerns could be about vertical market power, when a company merges with a supplier or with a company that refines or distributes its products, or conglomerate market power, which applies to a tie-up between companies with complementary but not interchangeable products, which is the case in seeds and pesticides.
Analysts at Bernstein Research and Bank of America Merrill Lynch in separate research notes on Friday cited Syngenta's top management as saying during a dinner with analysts in London that Syngenta shareholders would bear the risk of a deal getting blocked for non-horizontal antitrust reasons.
A Syngenta spokesman confirmed the remarks, saying Syngenta's legal team had concluded that Monsanto's proposal did not cover significant regulatory aspects.
Bernstein analyst Jeremy Redenius said that if the interpretation is accurate, it would amount to a "huge omission" in the guarantees offered to Syngenta shareholders.
"It's surprising that the break-up fee would not cover that," he added.
Under the merger plan laid out by Monsanto, Syngenta shareholders would retain a stake of about 30 percent of the combined group.
In response, a Monsanto spokeswoman told Reuters the break-up fee would apply to any antitrust concerns, and referred to a June 6 letter sent by Monsanto to Syngenta's board of directors, which had been published by Syngenta.
"Our proposal as outlined in our letter is both clear and unequivocal: the $2 billion reverse break-up fee would bepayable by Monsanto if it is unable to obtain necessary global regulatory approvals – horizontal or vertical. This confusion reinforces the need for the companies to sit down for constructive and direct dialogue to advance these conversations," the spokeswoman said in a written statement.
Monsanto wants to combine its world-leading seeds business with Syngenta's pesticides business, the largest in the industry. Syngenta has rejected the offer as too low and refused to open its books.
It has also argued that regulators would consider the merged group's combined market power in seeds and chemicals, because the two industries were gradually converging, as efforts by firms including Bayer (BAYGn.DE), Monsanto and Syngenta show.
These companies are trying to become more efficient by developing seeds and pesticides in tandem and by developing sales and distribution strategies that integrate the two product categories.
Monsanto has argued that after the proposed sale of Syngenta's seeds business and some overlapping herbicides operations, regulators would not find any loss in head-to-head competition with its rivals.
Syngenta has embarked on a number of meetings with analysts and investors after reporting better-than-expected first-half earnings on Thursday last week.
At the time, it also reaffirmed its profitability targets, viewed as ambitious by some analysts, and highlighted the potential of new products in development, as it continued to argue its case for a strong future alone.
Additional reporting by Patricia Weiss, editing by David Evans