During the whole of 2016, many of the companies that do business in the agricultural industry have concluded the best way to maximize their marketplace opportunities is by combining forces. Earlier this year, Syngenta agreed to be acquired by ChemChina. Likewise, former rivals Dow and DuPont announced plans to merge their businesses as well.
Not to be left out, German-based Bayer proposed acquiring agricultural giant Monsanto back in May. Over the course of the next few months, the two companies went back on forth between offers, rejections, and counteroffers. Finally, on September 14, Monsanto’s Board of Directors announced to the world it had accepted Bayer’s revised offer of acquisition.
And with that, the crop protection/seed business witnessed the planned birth of a new global market leader in the agricultural market. With this deal, Bayer is paying $66 billion for Monsanto – equivalent to $128 per share – in an all-cash transaction financed through debt and equity. This represents a 44% premium over Bayer’s original offer to acquire Monsanto first proposed on May 9.
“We are pleased to announce the combination of our two great organizations,” said Werner Baumann, CEO of Bayer AG, in a conference call with the world’s media held on Sept. 14. “This represents a major step forward for our Crop Science business and reinforces Bayer’s leadership position as a global innovation-driven Life Science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees, and society-at-large.”
Monsanto Chairman and CEO Hugh Grant echoed these views. “Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders at Monsanto,” said Grant. “We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration.”
According to both executives, the combination of Bayer and Monsanto brings together two different, but highly complementary businesses. “The combined business will benefit from Monsanto’s leadership in seed and traits and Climate Corp. platform along with Bayer’s board crop protection product line across a comprehensive range of indications and crops in all key geographies,” said Baumann. “As a result, growers will benefit from a broad set of solutions to meet their current and future needs, including enhanced solutions in seeds and traits, digital agriculture, and crop protection.”
In terms of the combined company’s corporate structure, Bayer-Monsanto will have its global Seed & Traits and North American commercial headquarters in St. Louis, MO. The global Crop Protection and overall Crop Science headquarters will be in Monheim, Germany. The company will also maintain an important presence in Durham, NC, as well as digital farming activities in San Francisco, CA.
According to Baumann, the combined companies expect to realize $1.5 billion in savings after year three from the deal’s close, which is expected to take place by the end of 2017. Overall, a combined Bayer-Monsanto would have annual sales in the $26 billion range – compared with approximately $15 billion for both the Syngenta-ChemChina and Dow-DuPont pairings – split almost evenly between crop protection products (55%) vs. seed and traits (45%).
Of course, some analysts have speculated that regulators in places such as the U.S., Canada, or elsewhere will not agree to approve this deal for various reasons. However, Baumann is confident this won’t be the case, and Bayer has pledged to pay Monsanto a $2 billion reverse antitrust break fee in the event this occurs.
But Monsanto’s Grant doubted the proposed deal would come to conclusion. “The overlaps between the two companies are minimal,” he said. “Monsanto is a seed and biotech business; Bayer is a preeminent chemical business.”
Still there are at least a few areas where a product/line divestiture might be in order. For example, when Monsanto acquired Delta Pine Land’s business back in 2007, the company was required to divest the Stoneville cotton seed brand and related business assets to do so. The buyer in this case was Bayer. With Bayer and Monsanto combining forces, the Stoneville brand might once again be in search of a new owner.
And then there’s the Monsanto name itself. For several years now, various anti-agriculture groups have rallied general public opposition against the industry by using the Monsanto name as a stand-in for “big farming/big business.” In this kind of environment, would Bayer seek to retain the name Monsanto?
According to Baumann, Bayer intends to keep a family of strong brands that its customers have long associated with high quality, but “no final decisions have been made with regard to the Monsanto name.”
Monsanto’s Grant reiterated this point. “We are flexible on the Monsanto name question,” he said. “But right now, we are more focused on the innovation our brands can bring to a Bayer-Monsanto combination and the fact that St. Louis will continue to be the center for our seed business.”