Bayer offers to buy Monsanto in global ag chem shakeout

Reuters — German drugs and chemicals group Bayer AG made an unsolicited takeover offer for U.S. seeds company Monsanto, aiming to create the world’s biggest agricultural supplier and integrate pesticides and seeds markets.

Monsanto disclosed the approach on Wednesday before Bayer confirmed its move, though neither gave the proposed terms. Sources said Bayer would pay Monsanto shareholders with cash and stock, though the offer price could not be learned.

Bernstein Research analyst Jeremy Redenius estimated the price at 41.9 billion euros (C$61.6 billion), plus 6.7 billion euros (C$9.85 billion) in assumed debt. He said Bayer might need a 27 billion-euro share issue to help to fund the purchase.

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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 (C$84 billion to $96 billion), according to Citi analysts.

Bayer shares slid eight per cent to a 2-1/2 year low of 88.39 euros as some investors worried about the potential cost. Monsanto was up 4.7 per cent at $101.77 in afternoon trading in New York.

The market capitalization of Monsanto meant the deal would likely eclipse ChemChina’s planned acquisition of Swiss agrichemicals company Syngenta and could face U.S. antitrust hurdles. Monsanto itself pursued Syngenta last year.

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

UBS Global Asset Management, which Reuters data showed is among Bayer’s 30 biggest investors, said it was “deeply concerned” about the burden on Bayer’s finances from a takeover. It preferred that the companies agree on a joint venture or use prices before the deal was announced.

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

Bayer’s healthcare-focused investor base would be unhappy about the shift, the bank said.

Price estimates

Bayer, with a market value of US$90 billion, said the merger would create “a leading integrated agriculture business,” referring to Bayer’s push for more synergies by combining the development and sale of seeds and crop protection chemicals.

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

A sale of Bayer’s stake in foam chemicals maker Covestro could bring about four billion euros, while its animal health business, which Bayer might put on the block, could fetch up to seven billion euros.

The proposal comes as U.S. regulators review ChemChina’s deal for Syngenta on concerns about the security of the U.S. food supply.

Any marriage between Bayer and Monsanto could raise U.S. antitrust concerns due to an overlap in the seeds business, particularly in soybeans, cotton and canola, according to antitrust experts.

Bayer’s proposal, which would be its largest and dwarf the 17 billion-euro takeover of drugmaker Schering in 2006, comes less than three weeks after Werner Baumann took over as Bayer CEO, 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 more diversified than Syngenta or Monsanto, selling cancer drugs, flea and tick collars for pets and Coppertone sunscreen. A deal with Monsanto could lead to a breakup of the group, according to analysts.

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.

Bayer is ranked No. 2 in crop chemicals, with an 18 per cent market share, just behind Syngenta at 19 per cent, according to industry data.

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

Reporting for Reuters by Greg Roumeliotis and Mike Stone in New York, Ludwig Burger in Frankfurt and Victoria Bryan in Berlin.

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