ZURICH/LONDON (Reuters) - Agrochemicals firm Syngenta (>> Syngenta AG) on Friday rejected a $45 billion (£29.1 billion) takeover offer from Monsanto (>> Monsanto Company), saying the offer undervalued the Swiss firm and did not fully take into account regulatory risks.

Sources had told Reuters overnight that the two agricultural companies were working with investment banks on a takeover deal that would create an industry behemoth with combined sales of more than $31 billion.

But, Syngenta said on Friday that its board had unanimously rejected a 45-percent cash offer by Monsanto that would value Syngenta at 449 Swiss francs ($486.35) per share.

"The offer fundamentally undervalues Syngenta's prospects and underestimates the significant execution risks, including regulatory and public scrutiny at multiple levels in many countries," Syngenta said in a statement.

Monsanto confirmed it had made an offer for Syngenta and, in a statement, said it was confident of obtaining all necessary regulatory approvals to close the deal.

Syngenta shares closed up 19 percent at 396.90 Swiss francs on Friday. Monsanto shares were up about 3 percent at $122.51 on Friday afternoon on the New York Stock Exchange.

Swiss company Syngenta had been working with Goldman Sachs (>> Goldman Sachs Group Inc) to assess the merits of a sale to the world's largest seeds company Monsanto, which is being advised by Morgan Stanley (>> Morgan Stanley), the sources had earlier told Reuters.

Rumours of talks between the two companies gained pace at the end of April, sending shares in Syngenta to a record high of 351 Swiss francs on May 4.

Monsanto, which initially approached Syngenta last year, has long been interested in its Swiss rival and the potential to base itself in Switzerland and benefit from lower taxes, one of the sources told Reuters.

Following attempts by the U.S. Treasury to clamp down on such moves, known as tax inversion, Monsanto may have to buy Syngenta in a cash rather than stock transaction and would be unable to redomicile in Switzerland, an industry source said.

RIVAL BIDDERS?

Monsanto foresees strong benefits from a takeover of Syngenta, which makes heavy research and development (R&D) investments in crop technology to increase the average productivity of crops such as corn, soybeans, sugar cane and cereals.

Monsanto, meanwhile, is focused on conventional and biotech seeds and last year raised its R&D spending to $1.7 billion from $1.5 billion in 2013.

"There is a clear strategic logic to a deal," one of the industry sources said. "Syngenta is the only available target in crop protection. It's no wonder Monsanto continues to circle the company."

A deal would come as prospects for genetically modified (GM) crops are improving in the European Union after a change in its legislation unlocked a stalled approval process. Monsanto owns the only GM product approved for cultivation in the EU, a modified maize.

Despite the two companies' cultural affinity, a merger may be challenged by antitrust regulators, primarily in North America, where the two groups are already seen as market leaders in the seeds industry.

German chemicals company BASF (>> BASF SE) and U.S. petrochemicals group Dow Chemical (>> Dow Chemical Co) could be among possible bidders for all or parts of Syngenta, one of the sources said.

He mentioned Chinese state-owned firm, China National Chemical Corp (ChemChina), as another possible buyer with strong appetite to bulk up its European presence, though Syngenta may be reluctant to cede control to an Asian rival.

Spokesmen at BASF and Dow Chemical declined to comment, while representatives of ChemChina were not immediately available for comment.

Syngenta, which was formed in 2000 by the merger of Novartis Agribusiness and Zeneca Agrochemicals, also competes with Bayer CropScience (>> Bayer CropScience Ltd) and DuPont Pioneer.

(Additional reporting by Arno Schuetze in Frankfurt, Greg Roumeliotis and Mike Stone in New York, Sybille de La Hamaide in Paris and Avik Das in Bengaluru; Editing by Gopakumar Warrier and Keith Weir)

By Katharina Bart and Pamela Barbaglia