Bayer courts Monsanto with preliminary buyout offer

19 May 2016

German chemicals and drugs company Bayer AG has made a preliminary offer to buy Monsanto Co, the world's largest supplier of seeds and farm chemicals, Reuters yesterday reported, citing people familiar with the matter.

Monsanto's board is currently evaluating the proposal and is mulling how to respond, the report said.

A deal between the two would be the latest in a wave of consolidation in the chemical and agribusiness industry.

In December, Dow Chemical Co and DuPont Co agreed to a $130-billion merger of equals (See: Dow, DuPont to merge and split, say reports), and in February, Chinese state-owned China National Chemical said that it would acquire Swiss seeds and pesticides giant Syngenta AG for $43 billion (ChemChina to acquire Syngenta in $43-bn friendly deal). Leverkusen, Germany-based Bayer has a market value of $90 billion, while Monsanto has a market cap of $46.3 billion.

A successful deal would create a company with $68 billion in annual sales, and have about 28 per cent of the world's pesticides market share and about 36 per cent of US corn seeds and 28 per cent of soybean seeds, according to Morgan Stanley estimates.

St Louis-based Monsanto is the world's largest seed company and a leading producer of genetically engineered seed and Roundup, a glyphosate-based herbicide.

It operates in two segments - seeds and genomics consisting of the global seeds and traits business, biotechnology platforms and precision agriculture; and agricultural productivity comprising crop protection products and lawn-and-garden herbicide products.

Bayer, the inventor of Asprin, operates in four segments - pharmaceuticals, consumer health, crop science, and animal health.

Its Crop Science Division has businesses in seeds, crop protection and non-agricultural pest control, which is operated into two operating units - Crop Protection / Seeds and Environmental Science.

Crop Protection / Seeds markets a broad portfolio of high-value seeds along with chemical and biological pest management solutions, while Environmental Science focuses on non-agricultural applications, with a broad portfolio of pest control products and services for areas ranging from the home and garden sector to forestry.

In 2002, Bayer AG acquired Aventis (now part of Sanofi) CropScience and merged it with its Crop Protection unit to form Bayer CropScience.

Belgian biotech company Plant Genetic Systems became part of Bayer through the Aventis acquisition.

Also in 2002, Bayer AG acquired the Dutch seed company Nunhems, which at the time was one of the world's top five seed companies.

Bayer could sell its 69 per cent stake in its plastics unit Covestro AG and its animal-health business to make the acquisition work, said Colin Isaac, a chemical analyst with Atlantic Equities in London.

Bayer could pay for some of the deal in cash with €15 billion raised in debt, Jeremy Redenius, an analyst at Sanford C. Bernstein & Co, had said in a note. It could also issue additional shares and sell assets including the animal health unit, he said.

Earlier, Monsanto had been doggedly pursuing Syngenta, the largest player in the agrochemicals business in order to add a broad portfolio of pesticides and research capabilities.

Some analysts opine that Monsanto may not agree to a deal, while others say that Monsanto has few options since it, Bayer and BASF are the only major global seed and pesticide players left to face merged and enlarged rivals.