Bayer confirms making preliminary buyout offer for US rival Monsanto

20 May 2016


German chemicals and drugmaker Bayer AG yesterday confirmed media reports that it has made a preliminary unsolicited offer to buy its US rival Monsanto Co, the world's largest supplier of seeds and farm chemicals.

Both companies disclosed the takeover offer, but neither revealed terms of the proposal.

Bayer said that its executives recently met with executives of Monsanto to privately discuss a negotiated acquisition of Monsanto.

''The proposed combination would reinforce Bayer as a global innovation-driven Life Science company with leadership positions in its core segments, and would create a leading integrated agriculture business, the Leverkusen, Germany-based company said in a statement.

Monsanto said, ''In response to recent media reports, Monsanto Company disclosed that it has received an unsolicited, non-binding proposal from Bayer AG for a potential acquisition of Monsanto, subject to due diligence, regulatory approvals and other conditions.''

''The Board of Directors of Monsanto is reviewing the proposal, in consultation with its financial and legal advisors. Monsanto will have no further comment until its Board of Directors has completed its review. There is no assurance that any transaction will be entered into or consummated, or on what terms,'' the statement added.

A deal between the two would be the latest in a wave of consolidation in the chemical and agribusiness industry. In December, Dow Chemical Co and DuPont Co agreed to a $130-billion merger of equals (See: Dow, DuPont to merge and split, say reports) 

and in February, Chinese state-owned China National Chemical said that it would acquire Swiss seeds and pesticides giant Syngenta AG for $43 billion (ChemChina to acquire Syngenta in $43-bn friendly deal) Monsanto has a market cap of $46.3 billion and debt of $9.7 billion, hence any offer from Bayer would have to be 14-16 times Monsanto's core earnings, which would be between $64 billion to $73 billion, according to analysts.

A successful Bayer-Monsanto merger would create a company with $68 billion in annual sales, and have about 28 per cent of the world's pesticides market share, about 36 per cent of US corn seeds and 28 per cent of soybean seeds, according to Morgan Stanley estimates.

But Bayer would have raise around $31 billion through share issue to fund the acquisition.

Bayer could also raise around $4.5 billion from selling its stake in foam chemicals maker Covestro and raise another $8 billion from the sale of its animal health business, which Bayer had earlier said that it may divest this division.

1n 2014, it had tried to swap its animal health unit and also pay some cash in exchange for Merck & Co's consumer healthcare business, but the deal did not materialise and Bayer acquired Merck & Co's consumer healthcare unit for $14.2 billion minus the swap.

A successful deal with Monsanto would be Bayer's biggest since it paid €17 billion in 2006 to buy German multinational pharmaceutical company Schering AG, and also become the largest-ever German takeover of a foreign company (Bayer divests diagnostics to Siemens, eases impact of Schering acquisition). St Louis-based Monsanto is the world's largest seed company and a leading producer of genetically engineered seed and Roundup, a glyphosate-based herbicide.

It operates in two segments - seeds and genomics consisting of the global seeds and traits business, biotechnology platforms and precision agriculture; and agricultural productivity comprising crop protection products and lawn-and-garden herbicide products.

Bayer, the inventor of Asprin, operates in four segments - pharmaceuticals, consumer health, crop science, and animal health.

Its Crop Science Division has businesses in seeds, crop protection and non-agricultural pest control, which is operated into two operating units - Crop Protection / Seeds and Environmental Science.

Crop Protection / Seeds markets a broad portfolio of high-value seeds along with innovative chemical and biological pest management solutions, while Environmental Science focuses on non-agricultural applications, with a broad portfolio of pest control products and services for areas ranging from the home and garden sector to forestry.

In 2002, Bayer AG acquired Aventis (now part of Sanofi) CropScience and merged it with its Crop Protection unit to form Bayer CropScience.

Belgian biotech company Plant Genetic Systems became part of Bayer through the Aventis acquisition.

In 2002, Bayer AG acquired the Dutch seed company Nunhems, which at the time was one of the world's top five seed companies.

Earlier, Monsanto had been doggedly pursuing Syngenta, the largest player in the agrochemicals business in order to add a broad portfolio of pesticides and research capabilities.

Some analysts opine that Monsanto may not agree to a deal, while others say that Monsanto has few options since it, Bayer and BASF are the only major global seed and pesticide players left to face merged and enlarged rivals.

A merger between Bayer and Monsanto could also raise antitrust concerns in the US and elsewhere, since there is overlap between their seeds businesses, particularly soybeans, cotton and canola.

Monsanto is the leader in seeds, with a 26 per cent market share, followed by DuPont with 21 per cent. If the DuPont-Dow Chemical merger is approved by regulators, a Bayer-Monsanto merger would further reduce the number of major companies in the seeds and pesticides business from six to four.

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