7 things to know about the Bayer-Monsanto deal
The proverb “if at first you don’t succeed, try, try again” is certainly on point when it comes to Bayer’s acquisition of Monsanto.
German-based Bayer, known to U.S. consumers for introducing aspirin more than a century ago, made three other buyout offers before Monsanto accepted an all-cash deal, the largest this year and the biggest foreign takeover of a U.S. corporation, according to DealLogic.
Here’s a closer look at the merger.
1. How do they fit? St. Louis-based Monsanto (MON) is the largest producer of seeds, selling more than 2,000 different varieties, and a proponent of genetically modified organisms (GMOs), which some argue present health risks to consumers. Bayer also has a Crop Sciences business which sells insecticides, herbicides, and seeds.
2. Who wins? Top institutional shareholders of Monsanto include Vanguard, with 30.4 million shares, State Street, with 17.5 million, and Fidelity parent FMR, with 16.6 million shares, according to Yahoo Finance. Monsanto CEO Hugh Grant owned about 171,000 shares as of last November.
3.Why now? Farmers, who are key customers for Bayer and Monsanto, aren’t in a spending mood since prices for commodities such as corn and soybeans have been depressed for years and show no signs of recovering anytime soon. Markets weakened further earlier this week when the U.S. Department of Agriculture issued a production forecast that was more bullish than had been expected. Shares of Monsanto and other agricultural companies “have been in the dumps along with the agricultural markets,” said Christopher Muir, an analyst with S&P Capital IQ.
4. Others are doing it. The agriculture chemicals and seeds industry is undergoing a sea change. DuPont (DD) and Dow Chemical (DOW) late last year unveiled plans to merge. The China National Chemical Corporation announced in February that it would buy Switzerland-based Syngenta for $43 billion, six months after rejecting a buyout overture from Monsanto. Both acquisitions are currently being reviewed by antitrust regulators.
5. Financial benefits. The companies expect to save $1.5 billion from the merger after the third year of its closing, according to their press release. Combined, Bayer and Monsanto will have a research and development budget of about 2.5 billion euros, or $2.8 billion. In 2015, they had combined agricultural sales of 23 billion euros, or $26 billion.
6. Antitrust concerns? S&P Captial’s Muir and Argus Research analyst Bill Selesky don’t see any significant antitrust issues, but say there may be some divestitures. Wall Street, however, isn’t so sure given the unexpected rejections of some mergers such as the Staples-Office Depot deal. That hesitancy is evident in Monsanto’s stock price, which last traded at $107.58, well under Bayer’s offer price.
7. Who’s in charge? The companies made no mention of who will run the combined entity, which is unusual in merger announcements. Given that Bayer is the one writing the check, its CEO Werner Baumann likely will be the one in charge, according to Selesky. But given the complexity of the deal, Monsanto’s Grant likely won’t be leaving anytime soon, the analyst added. The companies said their combined seeds and traits business will be in St. Louis along with its North American commercial headquarters. A Bayer spokesman said it’s too soon to provide details on how the giant company will be managed.