Bayer buys Monsanto for $66-bn to create a crop sciences giant

Bayer and Monsanto today signed a definitive merger agreement under which Bayer will acquire Monsanto for $128 per share and an aggregate value of $66 billion, in an all-cash transaction.

The boards of directors of Monsanto and Bayer and Bayer's Supervisory Board have unanimously approved the agreement, the companies stated in joint press release.

Based on Monsanto's closing share price on 9 May 2016, the day before Bayer's first written proposal to Monsanto, the offer represents a premium of 44 per cent to Monsanto's stock price.

The combination is expected to create significant synergies, leading to annual returns of approximately $1.5 billion after the third year, with additional synergies from integrated solutions in future years, the two stated in press release.

''We are pleased to announce the combination of our two great organisations. 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,'' said Werner Baumann, CEO of Bayer AG.

Bayer shareholders are expected to benefit from accretion to core EPS in the first full year after closing and double-digit percentage accretion in the third full year

With the combined business' global seeds and traits and North American commercial headquarters in St Louis, the combined business could retain a strong presence in the US.

''Today's announcement is a testament to everything we've achieved and the value that we have created for our stakeholders at Monsanto. We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration,'' said Hugh Grant, chairman and chief executive officer of Monsanto.

The combined business will benefit from Monsanto's leadership in seeds and traits and Cimate Corporation platform along with Bayer's broad crop protection product line across a comprehensive range of indications and crops in all key geographies.

The combination also brings together both companies' leading innovation capabilities and R&D technology platforms, with an annual pro-forma R&D budget of approximately EUR 2.5 billion.

With pro forma sales of the combined agricultural business of EUR 23 billion in calendar year 2015, the combined company seeks big potential for long-term growth. Beyond the attractive long term value creation potential of the combination, Bayer expects the transaction to provide its shareholders with accretion to core EPS in the first full year after closing and a double-digit percentage accretion in the third full year.

Bayer has confirmed sales and cost synergies assumptions in due diligence and expects annual EBITDA contributions from total synergies of approximately USD 1.5 billion after year three, plus additional synergies from integrated solutions in future years.

Bayer intends to finance the transaction with a combination of debt and equity. The equity component of approximately $19 billion is expected to be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights. Bridge financing for $57 billion is committed by BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan.

The acquisition is subject to customary closing conditions, including Monsanto shareholder approval of the merger agreement and receipt of required regulatory approvals. Closing is expected by the end of 2017.

The companies said they would work diligently with regulators to ensure a successful closing. Bayer has also committed to a $2 billion reverse antitrust break fee, reaffirming its confidence that it will obtain the necessary regulatory approvals.

The combined agriculture business will have its global seeds and traits and North American commercial headquarters in St Louis, Missouri, its global crop protection and overall crop science headquarters in Monheim, Germany, and an important presence in Durham, North Carolina, as well as many other locations throughout the US and around the world.

BofA Merrill Lynch and Credit Suisse are acting as lead financial advisors and structuring banks to Bayer in addition to providing committed financing for the transaction; Rothschild has been retained as an additional financial advisor to Bayer. Bayer's legal advisors are Sullivan & Cromwell LLP (M&A) and Allen & Overy LLP (Financing).

Morgan Stanley & Co. and Ducera Partners are acting as financial advisors, and Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Monsanto.