Bayer Makes Takeover Approach to Monsanto -- 3rd Update
May 18 2016 - 11:16PM
Dow Jones News
By Jacob Bunge and Dana Mattioli
Bayer AG has approached Monsanto Co. about a takeover that would
fuse two of the world's largest suppliers of crop seeds and
pesticides, according to people familiar with the matter.
Details of the offer couldn't be learned and it is unclear
whether Monsanto will be receptive to it. Should there be a deal it
could be valued at more than $42 billion, which is Monsanto's
current market capitalization.
Should the bid succeed, a combination of the companies could
boast $67 billion in annual sales and create the world's largest
seed and crop-chemical company. A successful deal would ratchet up
consolidation in the agricultural sector, after rivals Dow Chemical
Co., DuPont Co. and Syngenta AG struck their own deals over the
past six months.
But there is no guarantee regulators would bless such a tie-up,
and if Monsanto isn't on board, winning such approval could be an
even greater challenge. Indeed, people familiar with the matter
have questioned whether Monsanto would be interested in such a
deal.
Absorbing St. Louis-based Monsanto, the world's top seed company
in terms of sales, would push Bayer far more deeply into
agriculture, which currently accounts for about 22% of the German
company's business. Monsanto's $15 billion in seed and herbicide
sales could make agriculture about 40% of the combined entity's
business, with the rest coming from pharmaceuticals and consumer
health products.
The approach comes as the agricultural sector faces heavy
pressure after three years of sliding crop prices, which slashed
U.S. farmers' income to the lowest level in over a decade and
forced companies to cut prices on seeds while scaling back research
and laying off staff. Monsanto in May cut its profit forecast for
the year and is eliminating about 16% of its employees.
Folding Monsanto's world-leading seed franchise and its
trademark Roundup herbicide business into Bayer would create a
company that could market products ranging from Aspirin pain-relief
pills to crop genetics that enable plants to withstand bugs and
weedkillers. The combination would sell about 28% of the world's
pesticides and about 36% of U.S. corn seeds and 28% of soybean
seeds, according to Morgan Stanley estimates.
The companies' agricultural portfolios are geographically
complementary, with North America as Monsanto's largest market and
Bayer having a greater presence in Europe and Asia. Its broader
portfolio of chemicals to kill crop-damaging bugs and weeds can be
sold across more countries than the 28 that permit genetically
modified crops, a business where global growth has slowed.
As crop prices have fallen around the world and biotech seeds
have neared a point of saturation in major markets where they are
allowed, such as the U.S. and Brazil, world-wide acreage of
genetically engineered crops edged 1% lower last year, the first
such decline on record, according to the International Service for
the Acquisition of Agri-Biotech Applications.
Bayer has no significant business in corn and soybean seeds, the
two largest U.S. crops in terms of acreage, though overlap in the
companies' vegetable and cotton seed units may need to be addressed
through divestitures, analysts said after Bloomberg reported last
week that the German company was considering the approach.
Merging the businesses could require Bayer to divest itself of
its glufosinate herbicide business, which competes with Monsanto's
Roundup, as well as related seed genes that allow corn, cotton and
soybean seeds to withstand the herbicide, analysts said.
Monsanto sparked the deal fervor last year with an unsuccessful,
$46 billion bid for Swiss rival Syngenta AG, which ultimately
agreed to sell itself to China National Chemical Corp., while Dow
Chemical Co. and DuPont Co. unveiled their own merger. That left
the other major global seed and pesticide players -- Monsanto,
Bayer and BASF -- to potentially face enlarged rivals, and
entertain a narrower range of potential partners.
Hugh Grant, Monsanto's chairman and chief executive, said last
month that his company no longer planned to pursue big deals to
grow, instead focusing on its core business and weighing
partnerships or joint ventures to develop a broader pesticide
business. Monsanto's currency for deals has also waned. The
company's share price had declined 8.3% for the year before reports
last week that bidders, including Bayer, were considering an offer
for the biotech seed giant.
A combination of the two companies could achieve Monsanto's goal
in the Syngenta deal: adding a broad portfolio of pesticides and
deep research capabilities to match Monsanto's prowess in breeding
and engineering high-yielding seeds paired with new and more
powerful crop sprays. In pitching the Syngenta deal to investors
and farmers, Monsanto touted the potential to reduce research
spending by combining functions and the potential to bring new
products more quickly to farm fields.
Another seed-sector merger would also test farmers' appetite for
consolidation. Monsanto's bid for Syngenta and the Dow-DuPont
merger plan have heightened concerns over competition in the U.S.
Farm Belt, with a shrinking number of firms overseeing greater
swaths of the seed and pesticide business. The National Farmers
Union and other groups raised concerns that the mergers could yield
higher prices and fewer choices at grain elevators and crop supply
stores where farmers purchase their seeds and sprays.
(END) Dow Jones Newswires
May 18, 2016 23:01 ET (03:01 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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