Top: The Bayer AG
corporate logo on a building of the German drug and chemicals company in
Berlin, Germany, Monday, May 23, 2016. (AP Photo/Markus Schreiber);
Bottom: Aug. 31, 2015 photo of the Monsanto logo at the Farm Progress
Show in Decatur, Ill. (AP Photo/Seth Perlman)
German drug and chemicals company Bayer AG announced May
23 that it has made a $62 billion offer to buy U.S.-based crops and
seeds company Monsanto.
The proposed buyout would create a giant seed and farm chemical
company with a strong presence in the United States, Europe, and Asia.
Bayer said last Thursday that its executives met recently with their
Monsanto counterparts “to privately discuss a negotiated acquisition” of
Monsanto—the specialist in genetically modified crop seeds, which is
headquartered in St. Louis, Miss. Monsanto said then that it was
reviewing Bayer’s proposal.
Bayer said it plans to borrow some $47 billion to finance the
acquisition and produce the rest through equity, primarily by issuing
new shares.
“Monsanto is a perfect match to our agricultural business,” Bayer CEO
Werner Baumann said in a video message posted on his company’s website.
“We would combine complementary skills with minimal geographic
overlap.”
Monsanto shares suffered a colossal tumble last year that evaporated
about quarter of the company’s value. It has been struggling to recover
ever since. Monsanto’s last year was rather unimpressive on paper—net
sales were down 5 percent, while its net income dropped 16 percent.
Yet, as more news emerged about
Bayer’s acquisition appetite, Monsanto’s investors reacted positively,
sending shares up by more than 20 percent over the past two weeks.
Bayer, on the other hand, has been paying dearly for the prospective
deal. Its shares have lost some 14 percent since May 11. Moreover, the
company offered $122 per share, a 37 percent premium to Monsanto’s
valuation before the deal was offered on May 9.
Bayer expects the transaction will boost annual earnings by $1.5
billion after three years, thanks to synergies of the two companies. It
hopes for more benefits beyond that.
The takeover may allow the companies to better tackle the competition
after two major consolidations in the sector in recent months.
Last year DuPont and Dow Chemical announced a merger that would create a $130 billion giant, if approved by regulators.
Earlier this year, China’s ChemChina bought Swiss Syngenta for $43 billion.
Monsanto sought deals with Bayer and BASF, another major player in
the industry, in March, Bloomberg reported. Monsanto was interested in
the crop-science businesses of the other companies.
Bayer, based in Leverkusen, Germany, has more than 150 years history.
It is perhaps best know for introducing aspirin to market and
trademarking its name—although its U.S. trademark was confiscated by the
government during World War I. It is perhaps less known that Bayer also
introduced heroin to market and trademarked the name as a cough
medicine. With the help of a series of acquisitions, it became one of
the major pharmaceutical companies in the world. It also produces a line
of pesticides, which, it says, will fit with Monsanto’s offerings.
Monsanto, based in St. Louis, is one of the world’s largest
agrochemical and biotechnology company. It has been a frontrunner in the
genetic modification of plants, as well as the main target for
the anti-GMO movement. Its best known product—Roundup, a
glyphosate-based pesticide—is the most commonly used pesticide in the
United States.
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