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German drugs and chemicals group Bayer has made an unsolicited takeover proposal to US seeds company Monsanto, aiming to create the world's biggest agricultural supplier

EXCERPT: Bayer is ranked No. 2 in crop chemicals, with an 18 percent market share, just behind Syngenta on 19 percent…. Monsanto is the leader in seeds, with a 26 percent market share, followed by DuPont with 21 percent. DuPont agreed last year to merge with Dow Chemical. Any Bayer-Monsanto deal would further reduce the number of major players in seeds and pesticides to four from six.

1. Bayer offers to buy Monsanto in global agrochemicals shakeout
2. Bayer’s mega Monsanto deal faces mega backlash in Germany

1. Bayer offers to buy Monsanto in global agrochemicals shakeout

By Greg Roumeliotis and Mike Stone
Reuters, 19 May 2016
http://www.reuters.com/article/us-monsanto-m-a-bayer-idUSKCN0YA054

German drugs and chemicals group Bayer has made an unsolicited takeover proposal to U.S. seeds company Monsanto, aiming to create the world's biggest agricultural supplier and take advantage of converging pesticides and seeds markets.

Monsanto disclosed the approach on Wednesday before Bayer confirmed its move, though neither released proposed terms.

The $42 billion market capitalization of Monsanto means that the deal would be likely to eclipse ChemChina's planned acquisition of Swiss agrichemicals company Syngenta -- a target Monsanto itself pursued last year -- and could face U.S. antitrust hurdles.

A Monsanto statement said that its board was reviewing the proposal, which is subject to due diligence, regulatory approvals, and other conditions. There is no assurance that any transaction will take place, it added.

Bayer shares dropped more than 8 percent to a 2-1/2 year low of 88.39 euros in early Thursday trading, with some investors worried by the potential cost of a deal.

Monsanto shares were seen 7.6 percent higher at $104.50 in pre-market trades.

UBS Global Asset Management, which Reuters data shows is among Bayer's 30 biggest investors, said it was "deeply concerned" about the burden on Bayer's finances from a takeover, saying it would prefer the companies to agree a joint venture or a nil-premium merger.

Deutsche Bank analysts said a deal could shift Bayer's center of gravity to agriculture, accounting for about 55 percent of core earnings, up from roughly 28 percent last year excluding the Covestro chemicals business Bayer plans to sell.

That would have a negative impact on sentiment among Bayer's healthcare-focused investor base, the bank said.

PRICE ESTIMATES

Bayer, which has a market value of $90 billion, said the merger would create "a leading integrated agriculture business", referring to Bayer's push to seek more synergies from combining the development and sale of seeds and crop protection chemicals.

Most of the major agrichemical companies are aiming to genetically engineer more robust plants and custom-build chemicals to go with them, selling them together to farmers who are struggling to contend with low commodity prices.

While no takeover price was mentioned by either company, Bernstein Research analyst Jeremy Redenius estimated that it would be 41.9 billion euros ($47 billion), plus 6.7 billion euros in assumed debt. He said that Bayer might need a 27 billion euro share issue to help to fund the purchase.

Citi analysts have said that Bayer would probably need to pay 14-16 times Monsanto's core earnings, implying a takeover price including debt of 57 billion euros to 65 billion euros.

A sale of Bayer's stake in foam chemicals maker Covestro could raise about 4 billion euros, while its animal health business, which Bayer has said it might put on the block, could fetch up to 7 billion euros.

The proposal comes as ChemChina's deal for Syngenta faces regulatory review in the United States over concerns about the security of U.S. food supply.

Any deal between Bayer and Monsanto, which would be Bayer's largest by far and dwarf the 17 billion euro takeover of drugmaker Schering in 2006, could raise U.S. antitrust concerns because of an overlap in seeds business, particularly in soybeans, cotton and canola, antitrust experts have said.

The proposal comes less than three weeks after Werner Baumann took over as Bayer chief executive, a sign of the power base he built in his previous role as strategy chief.

Bayer, the inventor of aspirin and maker of Yasmin birth control pills, is far more diversified than Syngenta or Monsanto, with products including cancer drugs, flea and tick collars for pets and Coppertone sunscreen. Some analysts have said a deal with Monsanto could lead to a break up of the group.

Bayer's crop science division has businesses in seeds, crop protection, and non-agricultural pest control, potentially complementing Monsanto's seeds assets.

BAYER, BASF AMBITIONS

Both Bayer and German rival BASF SE have been looking to build scale in agrichemicals. Monsanto said after its failure to land Syngenta that it didn't need to do a deal, but it has also been involved in discussions.

Monsanto approached Bayer this year to express interest in the latter's crop science unit, in the form of an acquisition or joint venture, sources told Reuters in March.

Both Bayer and BASF had been exploring tie-ups with Monsanto for months but valuation concerns have made a deal elusive, sources have said.

Bayer is ranked No. 2 in crop chemicals, with an 18 percent market share, just behind Syngenta on 19 percent, industry data shows.

Monsanto is the leader in seeds, with a 26 percent market share, followed by DuPont with 21 percent. DuPont agreed last year to merge with Dow Chemical. Any Bayer-Monsanto deal would further reduce the number of major players in seeds and pesticides to four from six.

Morgan Stanley and Ducera Partners are financial advisers to Monsanto, the company said in its statement, while Wachtell, Lipton, Rosen & Katz is legal adviser.

(Additional reporting by Ludwig Burger in Frankfurt and Victoria Bryan in Berlin)

2. Bayer’s mega Monsanto deal faces mega backlash in Germany

Bloomberg, 19 May 2016
http://www.bloomberg.com/news/articles/2016-05-19/bayer-s-mega-deal-for-monsanto-faces-mega-pr-backlash-in-germany

* Many in Germany oppose two of Monsanto’s main products
* Some lawmakers have already come out in opposition to the deal

Bayer AG’s proposed mega deal to buy Monsanto Co. is likely to create a mega public relations challenge for the German company at home.

Bayer faces a backlash against Germany’s biggest planned acquisition because of two products from the St. Louis-based company that are widely detested in the country: genetically modified seeds and the weedkiller Roundup, which uses a compound called glyphosate that some believe can cause cancer.

“Germans view Monsanto as the main example of American corporate evil,” said Heike Moldenhauer, a biotechnology expert at German environmental group BUND. “It may not be such a good idea to take over Monsanto as that means incorporating its bad reputation, which would also make Bayer more vulnerable.”

A German Environment Ministry study released last month found 75 percent of citizens are against genetic engineering of plants and animals. Aware of voter suspicions, members of Chancellor Angela Merkel’s junior coalition partner, the Social Democrats, have already come out against the deal, which would turn Bayer into the biggest supplier of farm chemicals. Monsanto, which has a market value of $42 billion, said Thursday it’s studying the offer. Neither party has disclosed the terms.

German Opposition

A merger would “strengthen the economic power of genetic engineering in Germany, which we see as very problematic as the majority of the population in Germany is opposed to the technology,” said Elvira Drobinski-Weiss, the lawmaker responsible for formulating policy positions on genetic engineering for the Social Democrats.

BASF SE four years ago abandoned research into genetically modified crops in Germany, citing a lack of acceptance of the technology in many parts of Europe from consumers, farmers and politicians. The German company moved the unit to the U.S. and halted development of products targeted for Europe to focus on crops for the Americas and Asia.

“There’s virtually no market for genetically modified seeds in Europe because they’re so unpopular,” said Dirk Zimmermann, a GMO expert at Greenpeace in Hamburg. A deal combining Bayer and Monsanto would “hurt the future of sustainable agriculture.”

Public Outcry

Bayer is no stranger to the public outcry that crop chemicals can cause and has been under fire itself for the use of two chemicals that some claim are responsible for the dying off of bees. The Leverkusen-based company has already enlisted two large PR firms to advise on the takeover and potential backlash, according to people familiar with the matter. Bayer declined to comment on its strategy.

Glyphosate is another product provoking heated debate in Germany, with many wary of the potential health impacts. Nine of 14 letters-to-the-editor published in Thursday’s Sueddeutsche Zeitung, one of the country’s biggest newspapers, dealt with glyphosate, most of them against the continued use of the herbicide.

Several German hardware store chains, including Hornbach Baumarkt AG, Obi, and REWE Group’s Toom, stopped selling products using glyphosate last year in the wake of a report from the World Health Organization’s International Agency for Research on Cancer saying the weedkiller is probably carcinogenic. A joint position paper released this week by committees from the World Health Organization and United Nations disagreed with that assessment.

Coalition Squabbling

Merkel’s governing coalition is squabbling about whether to back reauthorizing the chemical’s use in the European Union when the current approval runs out in June. The chancellor and her agriculture minister support the continued use of the herbicide but many Social Democrats have come out against it, meaning the government hasn’t been able to take a position on the matter in EU discussions.

The opposition Green Party is against using glyphosate, said Renate Kuenast, Germany’s former agriculture minister and now head of the justice and consumer protection committee in parliament.

Bayer’s plan “is a wrong signal for Germany and environmental protection,” she said in an e-mail. “Monsanto stands for glyphosate and agricultural bio-engineering and thus for a loss of biodiversity and good soils. It’s a folly we need to stop.”