Mega Merger: Bayer Wants Monsanto
June 4, 2016
Is Monsanto about to be gobbled up? Looks very possible… if the price is right. Bayer made an unsolicited offer to takeover Monsanto for $62 billion USD earlier this month. After a couple of weeks of the agriculture and investment world holding their breath, Monsanto announced that the offer wasn’t complete or high enough.
But wasn’t Monsanto trying to buy Syngenta? That was last year, and since that courtship came to an end in the fall, Syngenta accepted a merger offer from Chem China, not long after Dow and DuPont agreed to merge. Until this merger frenzy started we had the Big 6, with BASF being the largest ag chemical company in the world. Past tense. Now they’re working on morphing into the Mega 4, and BASF will be the smallest player on the field. Bayer buying out Monsanto would form a corporation that dwarfs them all, making them the global leaders in agrichemicals, according to a video published by German TV company, Deutsche Welle .
Of course, absorbing Monsanto will change a lot of things. Firstly, there will no longer be a company named Monsanto. It will be dissolved as Bayer will quickly dissociate their positive reputation from that of the most reviled company in the world, but when the dust settles they will have seed traits and research data to combine with Bayer AG pesticides for complete crop packages. Bayer CEO, Werner Baumann, thinks that a Monsanto acquisition is the perfect fit for the Germany-based company.
RIPE FOR TAKEOVER
Bloomberg News says that Monsanto is high on the list of companies ripe for takeover. They have far too many problems to keep on keeping on. Naturally, they are their own worst enemy. To continue the incredible cash flow that Roundup was during the decades it was patented they just spliced in herbicide tolerance to the most grown crops in the world, combined with a marker that would force farmers to continue using the Monsanto brand weedkiller. Twenty years later it looks like they shouldn’t have put all their apples into one barrel. Now their portfolio has tunnel vision that is standing in the way of growth, and putting everything into seed makes their profit margin much more volatile than pesticide products. Wherein lies the reason for their Syngenta bid in 2015.
But there’s those seed patents, an army of crop spies, and lethal legal representation that allows them to ride herd on farmers in many countries around the world, but not all of those that Monsanto crops are grown in.
Argentina, the world’s 3rd largest soybean producing country, refuses to pay Monsanto it’s royalties. That’s a lot of lost beans. The Big M has been entrenched in an ongoing legal dance with the Dept. of Agriculture there for the past couple of years, which is getting them nowhere. Now they’ve got the same problem in India, the second largest cotton producing country globally. The Indian government has forbidden any further royalties be paid Monsanto for their cotton seed. Meanwhile Monsanto seed is being sold and planted far and wide, but their native partnership has all the value of pocket lint.
On top of dealing with the global agricultural commodities slump, Monsanto’s hope for fresh growth this year in the newly launched Roundup Ready 2 Xtend Soybean seems to have fallen flat on it’s face. Global commodity traders, Archer-Daniels-Midland Co. and Bunge Ltd. have stated they will refuse delivery of any harvests, because they expect that many countries will block the imports. The seed has also not been approved for planting in Europe as Monsanto had hoped. And even if the EU does put a signature on the delayed approval, U.S. farmers won’t be able to spray the crop with Monsanto’s chemicals designed for these soybeans. The EPA has not approved them, and there are no federal or state labels for dicamba products either. So… even if they do move some seed, the pesticide sales aren’t happening. Farms that grow for the export market won’t be wanting to plant RR2 Xtend this year, not with it looking like only China will accept them. Sales volume isn’t looking real promising for 2016. Not a good thing on the heels of last year’s lack of performance.
Back on home turf in the U.S. legal issues are cropping up left and right for Monsanto. California wants mandatory carcinogen labeling on Roundup products, so Monsanto is suing the state’s agency for costing them money and ruining their reputation, and a growing host of farmer and ag worker cancer lawsuits against Monsanto are erupting around the country. And Baumann could care less about Roundup. Bayer’s CEO considers glyphosate-based weed killer a generic product. He says everyone sells it. His interest lies in the innovations his company can bring to farmers using Monsanto’s seed traits with their crop health products as a complete Bayer package.
IT’S NOT OVER
This is just the first move, a “bear hug,” according to Wall Street. Bayer has said that the takeover will be a slow, gradual thing. Monsanto is open to considering the next offer, though a buyout of $122 a share when it’s value was about $20 a share lower at the time of the offer would seem like a good deal. At the time the bid was received, Monsanto’s market value was only $43 billion. If accepted, Hugh Grant, CEO of Monsanto, would have walked away $76 million richer in exchange for the shares he personally owns. But he says the offer undervalued the company’s true worth.
Unlike other industry mergers, there’s little chance that anti-trust issues would come into play. Bayer is a chemical company, and Monsanto is basically a seed company. Yes, they make Roundup, but it’s just a brand of glyphosate herbicide, nothing special.
On June 2nd, Reuters announced that Bayer has increased it’s funding for the buyout. With several new banks entered into the loan agreement, they have secured the funds to meet the recently rejected $65 billion with the pre-approved capability of raising it to $83 billion. Even at the original bid, it’s a historical foreign acquisition for Germany, the largest to date, if Bayer closes the deal. Market Realist says that it’s just the beginning of a standard hostile takeover. Bayer looks to be ready to pursue the goal to the finish line.
What is not clear at this point is whether the buyout would include the ownership of Seminis, and all the other various Monsanto-owned interests. If so, then Bayer would own most of the plants in the world. If not? We can only imagine.
A last minute memory jog from Mother Jones puts everything into a different perspective. When Syngenta spurned the last offer from Monsanto last fall, Hugh Grant made the statement that they would look at acquiring Bayer AG to broaden it’s product portfolio. It appears that he might have been doing just that in April based on correspondence from Baumann to Grant thanking him for setting up the meeting on April 18th. But on April 6th, Grant announced that Monsanto had tabled the idea of buying up a chemical portfolio. And 3 weeks later Bayer wants to buy Monsanto lock, stock, and barrel.
All is not as it seems. But Monsanto looks to be bleeding money, and the $45.6 million in PCB damages the St. Louis court ordered them to pay last week certainly won’t help.
Sources & More Info:
- Mother Jones
- Ripe for Bayer Takeover
- Market Realist
- Takeover Will Take Time
- Bayer-Monsanto Funding
- DW TV
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