Bayer raises takeover offer for Monsanto to $64 bn

15 Jul 2016


German drug and crop chemical group Bayer AG on Thursday raised its takeover bid for Monsanto Co by $2 billion in order to pressurise the US seed company to engage in talks.

In May, Monsanto, the world's largest seed company, rejected Bayer's $62-billion cash buyout bid saying that the unsolicited offer is "incomplete and financially inadequate.'' (See: Monsanto rejects Bayer's $62-bn bid, says offer inadequate) Monsanto had said that Bayer's offer "significantly undervalues (the) company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition."

The Leverkusen-based company had 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.

Although Monsanto has shared some information with Bayer, it has not yet agreed to provide a confidentiality agreement, which would allow Bayer to conduct due diligence. (Monsanto's books remain closed after Bayer bid rejection) Bayer yesterday raised its offer to $125 a share for a total of $64 billion and offered Monsanto a $1.5 billion reverse antitrust breakup fee.

Its latest offer represents a premium of 40 per cent over Monsanto's closing share price on 9 May.

Bayer said that it has comprehensively addressed Monsanto's questions concerning financing and regulatory matters and is prepared to make certain commitments to regulators, if required, to complete the proposed acquisition of Monsanto.

It also said that it has comprehensively addressed Monsanto's questions concerning financing and regulatory matters and is prepared to make certain commitments to regulators, if required, to complete the deal.

Bayer reaffirmed that its offer provides transaction certainty and would not be subject to a financing condition. It has already arranged for a syndicated loan facility agreement sufficient to provide the entire transaction financing, which is to be co-underwritten by five banks - BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan.

Monsanto said that its board would review Bayer's revised offer, in consultation with its financial and legal advisors.

Monsanto had approached Bayer in March expressing interest in its crop science unit, proposing options of either an outright acquisition or a joint venture, or any other type of partnership between the two companies.

Bayer moved fast since its German rival BASF had previously considered a tie-up with Monsanto and making an unsolicited bid - the largest all-cash takeover on record.

Analysts opine that Bayer's revised offer is good enough to compel Monsanto's board to open its books, saying that Bayer would have to go as high as $130 per share.

A deal between the two would be the latest in a wave of consolidation in the chemical and agribusiness industry. In December 2015, Dow Chemical Co and DuPont Co agreed to a $130-billion merger of equals, and in February, Chinese state-owned China National Chemical said that it would acquire Swiss seeds and pesticides giant Syngenta AG for $43 billion (See: 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.

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 the glyphosate-based herbicide Roundup.

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 operations in seeds, crop protection and non-agricultural pest control, which is divided 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 currently has a market cap of $45 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.

But 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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