The latest mega-merger combining two of the world’s largest farm suppliers aims to reshape the agricultural business and chemical sectors. On Wednesday, Sept. 14, Germany's Bayer AG secured a bid to buy U.S. seed giant, Monsanto Co., for $57 billion. The bid for Monsanto is valued at $66 billion, including debt. Bayer will require approvals from several government regulators already scrutinizing a wave of consolidation in the ag sector. It's the third time Bayer has hiked up its offer, and this time, it was enough to win over Monsanto's board. The takeover would create a vast conglomerate spanning pharmaceuticals, health products and pesticides.
The main obstacle the companies now face is getting the merger past regulators around the world. If they do nix the deal, Bayer says it has agreed to pay $2 billion to Monsanto.
Bayer, which is strongest in Asia and Europe, is set to gain from Monsanto's expertise in agriculture and seeds. Bayer would also benefit from the U.S. company's major presence in North America.
Bayer has said the combined companies would generate synergies of $1.5 billion over three years. While Monsanto’s seed-focused business doesn’t greatly overlap Bayer’s pesticide-heavy ag franchise, the marriage of these farm supplier giants will test the tolerance of farmers and politicians already tiring of multibillion-dollar deals to merge other top players in the $100 billion global market for seeds and pesticides, while fertilizer producers also consolidate.
Several deals announced over the past 10 months would place more than 80 percent of U.S. corn-seed sales and 70 percent of the global pesticide market under just three companies. This, notes the Wall Street Journal, is igniting fresh concerns about the pricing power of the market’s largest players as low crop prices continue to squeeze farmers’ incomes. In August, Senator Charles Grassley (R., Iowa) set a hearing for Sept. 20 to question seed-industry executives and experts.
The WSJ also pointed out Bayer CEO Werner Baumann's statement on an investor call that the companies have had "some initial contacts with regulatory agencies describing what this combination would be about," after the agreement was announced. "We have so far received encouraging feedback, but nothing beyond that," Baumann said, adding that regulatory filings will now begin.
Also on the call between the two companies, Hugh Grant, Monsanto's CEO, said "the overlap is quite small, with a few obvious exceptions. We feel quite good," he noted, regarding regulatory approval. But analysts have anticipated that Bayer may need to divest some businesses in which both companies compete, such as cotton and canola seed.
Look for the European Union to be closely scrutinizing the Bayer-Monsanto deal. In August, the EU began investigating the merger between seed suppliers Dow Chemical Co. and DuPont Co., and indicated it would do so with a Bayer-Monsanto deal months before the companies agreed to terms.