Bayer offers to acquire Monsanto for $62 bn including debt

23 May 2016


German chemicals and drugmaker Bayer AG today said that it has made a $62-billion cash offer including debt  to buy US seeds company Monsanto Co in order to create the world's biggest agricultural supplier.

The Leverkusen-based company has offered to pay $122 per share in cash, a 37-per cent premium over Monsanto's closing share price of $89.03 on 9 May when reports of Bayer's takeover approach surfaced.

The total deal values Monsanto at $62 billion. Bayer expects to generate synergies of approximately $1.5 billion three years after closing plus additional integrated offer benefits in future years.

Bayer said that its all-cash offer would not be subject to a financing condition and expects to fund the deal through a combination of debt and equity.

The expected equity portion represents approximately 25 per cent of the transaction's enterprise value and is expected to be raised primarily via a rights offering.

Bayer's offer values Monsanto at 15.8 times its 12-month earnings before interest, tax, depreciation and amortization (EBITDA) as of 29 February.

Bayer said that it is prepared to proceed immediately to due diligence and negotiations and to quickly agree to a transaction.

It also said that it along with its legal advisor, Sullivan & Cromwell LLP are very confident that they would be able to obtain all necessary regulatory approvals. It cited its highly successful track record of getting approvals for its earlier acquisitions, including Aventis CropScience, Schering AG, and Merck Consumer Care.

''We have long respected Monsanto's business and share their vision to create an integrated business that we believe is capable of generating substantial value for both companies' shareholders,'' said Werner Baumann, CEO of Bayer.

''Together we would draw on the collective expertise of both companies to build a leading agriculture player with exceptional innovation capabilities to the benefit of farmers, consumers, our employees and the communities in which we operate,'' he 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) 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.

In fiscal 2015, Bayer employed around 117,000 people and had sales of €46.3 billion.

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 said that the transaction would bring together leading Seeds & Traits, Crop Protection, Biologics, and Digital Farming platforms. The combined business would benefit from Monsanto's leadership in Seeds & Traits and Bayer's broad Crop Protection product line across a comprehensive range of indications and crops.

The combination would also expand Bayer's presence in the Americas and its position in Europe and Asia/Pacific.

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, which has a market cap of $46.3 billion and debt of $9.7 billion, 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, Bayer and BASF are the only major global seed and pesticide players left to face merged and enlarged rivals and a merger between Bayer and Monsanto could raise antitrust concerns in the US and elsewhere, since there is an 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, 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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