Bayer-Monsanto Deal Would Forge New Agricultural Force – Wall Street Journal
agreed to sell itself to Bayer AG
, in a $57 billion deal that would forge a new agricultural force and end the independence of one of the most successful and controversial U.S. companies.
If regulators approve, the German pharmaceutical and chemical conglomerate would add Monsanto’s world-leading position in seeds and crop genes, heavily tilting Bayer toward agriculture in a long-range bet on high-tech crops to sustain a growing global population.
The purchase price follows months of haggling and underscores Monsanto’s heft in agricultural biotechnology, developing corn, soybeans, cotton and other crops that can survive weed-killing sprays and produce natural toxins to repel bugs. But the sale of an icon of American agriculture, which traces its roots to a St. Louis chemical firm founded in 1901, also spotlights a sagging farm economy that shows few signs of rebounding as U.S. farmers prepare to reap another record corn and soybean crop this autumn.
It is the latest tie-up in a wave of deals that have reordered the $100 billion global market in crop seeds and pesticides in just the last 10 months, while fertilizer producers have also pursued deals. Seed makers, having already laid off thousands of employees and mothballed some research projects, see mergers as a way to reduce costs while more deeply integrating the development of new seeds and chemicals.
Bayer intends to fuse its prowess in pesticides, where it ranks among the world’s largest suppliers, with Monsanto’s capabilities in seed genetics and biotechnology, to create the world’s largest crop supply company in terms of sales. Werner Baumann, Bayer’s chief executive, in an interview said that the deal is “a fantastic combination for modern agriculture, to cater to the needs of society by providing the tools needed to feed a rapidly growing population.”
The combination will require approval from around 30 regulatory agencies around the world, executives said, including antitrust enforcers already examining tie-ups between some of the companies’ main rivals.
Dow Chemical Co.
and DuPont Co.
are pursuing a merger, and Swiss pesticide giant Syngenta AG
agreed to a $43 billion takeover by China National Chemical Corp., a state-owned conglomerate that already sells generic agricultural chemicals.
In June, European Union Antitrust Chief Margrethe Vestager took the unusual step of assuring some concerned lawmakers that competition officials would thoroughly vet any deal between Bayer and Monsanto.
Bayer on Wednesday pledged to pay Monsanto $2 billion if the deal is blocked by regulators, an increase from the $1.5 billion fee Bayer offered in July. While analysts anticipate that the companies may have to sell some overlapping businesses, including in cotton and canola seeds and in herbicides, Monsanto CEO Hugh Grant told reporters on a conference call that from a regulatory perspective, “I think it’s a very clean deal.”
The companies also plan to seek approval from the Committee on Foreign Investment in the U.S., which reviews foreign-driven purchases of U.S. assets for national security risks. That review should present no impediment, Mr. Baumann said, given Bayer’s 150-year history of doing business in the U.S.
If the deal succeeds, it would bookend a saga of Monsanto’s long-term investment in biotechnology from its infancy and later, its swift adoption by farmers, cementing the St. Louis company as the world’s largest seller of seeds in terms of sales. But biotechnology’s rise in agriculture also drew pushback from environmental and consumer groups, which spread opposition to the technology into the U.S. mainstream through a burgeoning market for organic foods made without genetically modified crops.
Monsanto commercialized the first genetically modified soybean and cotton varieties in 1996 and widely licensed its crop genes to competitors. Its success made Monsanto the poster child not just for genetically modified crops but for wider-ranging critiques of an agricultural system geared toward cheap, mass-produced food that took a toll on the environment and human health.
While farmers prize biotech seeds’ capacity for simplifying weed and insect control, they sometimes bridled at the seeds’ higher fees and intellectual-property protections, which Monsanto sometimes enforced by taking farmers to court when the company suspected them of illegally saving and replanting its seeds.
“While others were in the business, like Dow and Syngenta, they were clearly identified as the lead player,” said Dan Glickman, vice president of the Aspen Institute Congressional Program and a former U.S. agriculture secretary. “For that reason a lot of the barnacles and negatives attached to these technologies became their problem more than the others.”
Mr. Baumann said that Bayer, which also develops genetically modified crops, shares Monsanto’s belief that the technology is key to feeding a global populace anticipated to swell to 9.7 billion people by 2050, according to United Nations projections.
Mr. Baumann and Mr. Grant said that they haven’t yet determined whether Bayer will continue to use Monsanto’s brand name if the deal succeeds, though Mr. Grant said it is something about which Monsanto is willing to be “flexible.”
The deal would rank as Bayer’s largest ever and the biggest takeover of a foreign company by a German one, according to Dealogic. It would also push the aspirin maker much deeper into agriculture, with its expanded crop-science division accounting for roughly half of group sales, compared with about 30% in 2015. The health-care division, including the pharmaceuticals business, would constitute roughly the other half of group sales.
The companies aim to close the transaction by the end of 2017. Bayer said it expected the deal to generate synergies of $1.5 billion after the third full year following the closing. Monsanto’s base in St. Louis will become the company’s global hub for seeds.
Some Bayer investors in recent months raised concerns about what they saw as an abrupt shift in strategy under a new CEO— Mr. Baumann assumed the job May 1, just weeks before launching the bid.
The $128-a-share purchase price comes in below some analysts’ earlier projections of a deal at around $135 a share. Including debt the deal is valued at about $66 billion. Monsanto’s Mr. Grant said in an interview that Monsanto’s board evaluated all its options, including staying independent, and that Bayer’s all-cash offer presented the best choice.
“I’m very comfortable on the price,” Mr. Grant said. “This combination with Bayer unlocks the next tranche of growth and opportunities.”
Corrections & Amplifications:
Bayer said it agreed to buy Monsanto on Wednesday. An earlier version of this article incorrectly stated it was Monday. (Sept. 14, 2016)