Bayer buys Monsanto for $66bn

Bayer and Monsanto today announced that they signed a definitive merger agreement under which Bayer will acquire Monsanto for $128 per share in an all-cash transaction.

After several months of bids, Bayer chief executive Werner Baumann said: "We are pleased to announce the combination of our two great organizations. 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.

Monsanto chief executive High Grant said: "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."  

Monsanto’s seeds and Bayer’s crop protection product line will form a strong combination, they added, with an annual pro-forma R&D budget of approximately 2.5 billion euros.

Bayer board member Liam Condon said: "The agriculture industry is at the heart of one of the greatest challenges of our time: how to feed an additional 3 billion people in the world by 2050 in an environmentally sustainable way. It has been both companies’ belief that this challenge requires a new approach that more systematically integrates expertise across Seeds, Traits and Crop Protection including Biologicals with a deep commitment to innovation and sustainable agriculture practices.

"We are entering a new era in agriculture - one with significant challenges that demand new, sustainable solutions and technologies to enable growers to produce more with less. This combination with Bayer will deliver just that - an innovation engine that pairs Bayer’s crop protection portfolio with our world-class seeds and traits and digital agriculture tools to help growers overcome the obstacles of tomorrow.

Together Monsanto and Bayer will build on our proud tradition and respective track records of innovation in the agriculture industry, delivering a more comprehensive and broader set of solutions to growers," said Grant.

Pro forma sales of the combined agricultural business amounted to 23 billion euros in calendar year 2015. 

The combined agriculture business will have its global Seeds & 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 U.S. and around the world. The Digital Farming activities for the combined business will be based in San Francisco, California. ?

BofA Merrill Lynch and Credit Suisse acted 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.John Colley, of Warwick Business School, a Professor of Practice in the Strategy & International Business group who researches large takeovers, said: "Bayer's acquisition of 'Frankenstein' crop producer Monsanto could be a horror story for both Bayer and its customers: the farmers. 

"Apart from Monsanto's shareholders, who have hit the jackpot, this looks like a lose-lose bid. Bayer have been forced into paying too much and face major integration and competition authority risks. 

"By the time the competition authorities have finished with their demands Bayer may regret setting a German record. The farmers will lose out as product ranges are rationalised and attempts are made to increase prices. 

Bayer may have won the bid now, but could regret the move at their leisure. Bayer CEO Werner Baumann may be cursing his luck. Bayer's shareholders may be cursing him. 

"Bayer's hand was to some extent forced by recently agreed deals of ChemChina buying Swiss-based agrobusiness Syngenta for $44Bn cash rapidly followed by the all paper $130Bn merger of Dow Chemicals with Du Pont. Falling crop prices meant that demand and prices were declining for seeds and agricultural chemicals such as herbicides and pesticides. The industry is responding to adversity with a series of mergers which are expected to have three main benefits: cost reduction, less competition, and growth. 

"Bayer was clearly concerned at being left behind and was running out of options for merger targets precipitating the move for Monsanto. 

"German businesses are wary of major takeovers as research tells us that only around a quarter are successful, the vast bulk destroy value and around half are sold off again within 5 years.

"Clearly Bayer will realise cost savings from the acquisition, but they have had to pay an enormous price for Monsanto at a 45% premium to the previously undisturbed share price. In effect the bid premium is likely to represent rather more than any benefits extracted from the combination.

"On top of that integration will not be easy. In addition to the major culture clash between very different approaches to business, Monsanto is large and complex, which is a known contributory factor to a likely poor outcome.

"Reputational concerns also become an issue for Bayer with the GM foods campaign. EU and US competition authorities will make significant demands in terms of requiring disposals and imposing trade restrictions."

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