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Bayer clinches deal for Monsanto

But giant agrochemical acquisition will face close antitrust scrutiny

by Alexander H. Tullo
September 14, 2016 | A version of this story appeared in Volume 94, Issue 37

Credit: Bayer
A Bayer researcher picks soybeans in a lab.
A photo of a scientist picking soybeans in a lab.
Credit: Bayer
A Bayer researcher picks soybeans in a lab.

After months of wrangling, Monsanto has agreed to be acquired by Bayer for $66 billion. The deal will create the world’s largest supplier of agrochemicals and seeds—assuming antitrust regulators allow it to move forward.

The combined company will have $26.0 billion per year in crop-related sales, 55% from crop protection chemicals and 45% from seeds. That’s much more than the agricultural sales that will result from the industry’s two other pending mergers: $16.7 billion from ChemChina’s acquisition of Syngenta and $16.5 billion from the Dow Chemical-DuPont merger.

Bayer started its pursuit of Monsanto in May with a bid of $62 billion, or $122.00 per share. The German firm inched up its offer three times until Monsanto agreed to $128.00 per share, a 44% premium over its share price in May, before the overture was made public.

If it succeeds, the purchase will be the chemical industry’s largest deal ever, exceeding even the $65 billion that the merger of Dow and DuPont valued each of those companies when that transaction was unveiled last December.

Bayer expects the transaction to be completed by the end of next year. However, it will need to get past regulators, who are already up to their eyeballs in agrochemical deals to review.

Last month, worried that the Dow-DuPont merger would raise prices and hurt innovation in seeds and crop protection chemicals, the European Commission launched an in-depth review. The commission recently suspended the review as it awaits more information from both companies. The development could drag the process well past the December consummation the firms had hoped for.

U.S. Senator Chuck Grassley (R-Iowa) has been an outspoken critic of the agrochemical merger activities and is set to launch hearing on the matter later this month.

ChemChina’s purchase of Syngenta cleared review by the U.S. Committee on Foreign Investment last month. The companies aim to complete the deal later this year.

Some outside observers believe regulatory considerations could scuttle the Bayer-Monsanto transaction. “We expect significant antitrust and political hurdles and assign a 50% probability of deal completion,” Jeremy Redenius, a stock analyst at Bernstein, told clients in a report.

Monsanto stockholders may also be skeptical. Monsanto shares were trading on Sept. 14 at about $107.00, well below the offer price, an indication they believe one government or another might stop the deal.

Should antitrust considerations break up the deal, Bayer has promised to pay Monsanto $2 billion.

But the two companies are downplaying this possibility, stressing instead that they think the deal will be good for farmers. “The vision for this combination was born out of that desire to help farmers grow more with less,” says Monsanto CEO Hugh Grant.



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