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Bayer makes a bid for Monsanto

Unsolicited offer arrives amid flurry of seed and crop chemical deals

by Melody M. Bomgardner
May 19, 2016 | A version of this story appeared in Volume 94, Issue 21

Credit: Bayer
Photo of Bayer Chief Executive Officer Werner Baumann.
Credit: Bayer

Bayer has made an acquisition offer for Monsanto, according to the two companies. The bid, for an undisclosed amount, comes a mere two weeks into the tenure of new Bayer CEO Werner Baumann.

Although Monsanto says the proposal was unsolicited, the move was not surprising. Agriculture firms are looking to bulk up to better compete against the behemoth with $19 billion in annual sales that will be created from the merger of Dow Chemical’s agriculture business and DuPont’s Pioneer seed business.

In addition to its crop science division, Bayer’s businesses include pharmaceuticals, animal health, and consumer care products. With the addition of Monsanto’s $15 billion in sales, Bayer’s annual agricultural revenues would exceed $26 billion and total company sales would exceed $67 billion.

According to Bayer, a tie-up with Monsanto would create a “leading integrated agriculture business.” Monsanto’s product development is mainly focused on seeds and traits while Bayer—which also sells seeds—has a larger business in crop protection chemicals.

In addition, analysts have named Bayer rival BASF, also strong in chemicals, as another potential bidder for Monsanto. BASF and Monsanto have closely collaborated on genetic traits for corn, soybean, cotton, and canola since 2007.

But Monsanto is likely to resist suitors, at least for the time-being. Last month, CEO Hugh Grant told analysts on a conference call that he no longer sees large-scale mergers as a likely opportunity mostly because of regulatory concerns. In 2015, the company offered $45 billion to snap up Swiss crop chemicals firm Syngenta, but was rebuffed.

Instead, Syngenta accepted a $43 billion offer from ChemChina, anticipating that the combination will garner less antitrust scrutiny from regulators. But with Bayer, BASF, and Monsanto seemingly stranded on the sidelines, speculation about mergers will continue.

For now, it appears that Monsanto plans to proceed under its own powers to go up against the new agriculture giants. Laurence Alexander, chemicals analyst for investment bank Jefferies, puts the odds of a Bayer-Monsanto deal below 25%, and questions Monsanto’s go-it-alone strategy.

“We expect Monsanto to object to the offer, given its conviction (more adamant than ours) in its R&D pipeline and longer-term competitive advantages,” Alexander wrote in a note to investors.

Monsanto’s product pipeline includes seeds, second and third generation genetically modified traits, precision agriculture, and biological crop and seed treatments, according to its annual report.



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