Bayer Deal for Monsanto Caps Reshaping of Seed and Pesticide Sector
September 14 2016 - 11:18AM
Dow Jones News
By Jesse Newman and Jacob Bunge
Monsanto Co.'s agreement to a takeover by Bayer AG Wednesday
caps a whirlwind year and a half of deal making that has reshaped
the $100 billion seed and pesticide sector.
In the past year, Dow Chemical Co. and DuPont agreed to merge
while China National Chemical Corp. is buying Swiss company
Syngenta AG. If all three deals pass regulatory muster, the
emerging three entities would effectively control more than
three-quarters of U.S. corn-seed sales and 70% of the world's
pesticides.
The companies say the deals will help them bring new products to
markets faster and lead to bigger profits for farmers in the long
run. But some farmers worry that a shrinking number of suppliers
could mean higher prices for seeds and crop-chemicals and fewer
overall products.
"If you take six big companies and make them three, you've just
made it simpler for them to hold prices higher and maximized their
ability to make better margins at expense of farmers," said Mark
Watne, a 54-year old soybean and wheat farmer and president of the
North Dakota Farmers Union.
The prospect of higher costs for farm supplies comes at a time
when U.S. growers are navigating a multiyear slump in agricultural
commodity prices and farm profits, with net farm income in 2016
expected to slide for the third straight year to its lowest level
since 2009, according to the U.S. Department of Agriculture.
Some farmers say enough players remain in the marketplace to
promote competition or see the deals as a reasonable byproduct of
several years of reduced profitability in the sector.
"I like all the free market competition I can get," said Shane
Hanna, 33, who farms 1,400 acres with his father in northwestern
Indiana, adding that while he would always rather have one more
vendor to choose from than less, consolidation seems like the
"logical progression of business."
"I plan to farm in 2017 and I plan to farm in 2027," said Mr.
Hanna. "Flexibility and the ability to roll with the punches is the
name of the game in farming."
Monsanto, the world's largest seed company by sales, touched off
the consolidation wave in May last year with a $45 billion
acquisition proposal for Swiss pesticide giant Syngenta AG, an
unsolicited approach that followed years of on-again, off-again
talks about a tie-up between the two firms.
Monsanto wound up dropping its bid after repeated rebuffs from
Syngenta's board.
But the strategy driving Monsanto's attempted deal -- that a
deeper integration of seeds and crop chemicals will yield better
products at a lower cost amid a sustained slump in agriculture --
had taken root.
As U.S. farmers last autumn brought in another massive haul of
corn and soybeans, Dow Chemical Co. Chief Executive Andrew Liveris
described the seed sector's deal making fervor: "Everyone is
talking to everyone."
DuPont discussed a combination with Syngenta, but opted instead
for a megamerger with Dow aimed at eventually creating three
separate, independent companies, including an agricultural
firm.
The crush of deal talks among the six global suppliers of crop
seeds and pesticides drew half-joking comparisons to a grand game
of Tetris and speed-dating.
Syngenta, facing aggrieved shareholders nervous they could miss
out on a deal, said it was open to re-engaging with Monsanto but
ultimately pursued an all-cash, $43 billion sale to China National
Chemical Corp. The state-owned company's high-profile gambit to buy
a top-tier seed developer raised concerns among some U.S. farmers
and politicians wary of expanded Chinese influence over U.S. food
security. A U.S. national-security panel last month blessed the
deal, which analysts said much improved its chances of closing.
As the number of unattached seed companies dwindled, Bayer
turned the tables on Monsanto and approached the U.S. company with
a $62 billion bid, pitching the combination as a chance to create
"a truly global agricultural leader."
Monsanto rejected that price as too low and too risky given
financing and antitrust hurdles, and in July turned away a
sweetened offer of roughly $65 billion, but Monsanto repeatedly
said it saw logic in the deal and would entertain further
discussions.
On Wednesday, Monsanto agreed to a takeover by Bayer for $66
billion including debt.
Write to Jesse Newman at jesse.newman@wsj.com and Jacob Bunge at
jacob.bunge@wsj.com
(END) Dow Jones Newswires
September 14, 2016 11:03 ET (15:03 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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