Bayer buy­ing Mon­santo, will cre­ate global chem­i­cal, AG gi­ant

Daily Local News (West Chester, PA) - - BUSINESS - By Linda A. John­son and David McHugh

Amer­i­can seed and weed-killer com­pany Mon­santo and Ger­man medicine and farm chem­i­cal maker Bayer are com­bin­ing in a deal that could help farm­ers pro­duce higher yields to ad­dress chal­lenges from global warm­ing to ris­ing food de­mand from a fast­grow­ing global pop­u­la­tion.

Con­sumers could ben­e­fit from more-af­ford­able and health­ier food op­tions as well as the com­pa­nies’ us­ing their ex­per­tise to help farm­ers limit their chem­i­cal use and en­vi­ron­men­tal im­pact, com­pany ex­ec­u­tives said Wed­nes­day af­ter the all-cash deal was an­nounced.

It comes amid record har­vests driv­ing crop prices to painfully low lev­els for many farm­ers.

Af­ter four months of courtship, Lev­erkusen, Ger­many-based Bayer AG said Mon­santo Co. ac­cepted its third of­fer. In ad­di­tion to the $57 bil­lion price for share­hold­ers, Bayer is as­sum­ing $9 bil­lion in Mon­santo debt. It will pay Mon­santo share­hold­ers $128 per share, $6 above its ini­tial of­fer and a 44 per­cent pre­mium over the St. Louis com­pany’s clos­ing price be­fore ru­mors of a bid emerged.

Be­cause Bayer is mainly fund­ing the deal through debt, by sell­ing bonds and stock, Jef­feries LLC an­a­lyst Jef­frey Hol­ford wrote to in­vestors, Bayer’s in­creased debt load could limit in­vest­ment in its “sub-op­ti­mal” pre­scrip­tion drug pipe­line and its con­sumer health busi­ness.

The deal would cre­ate a global agri­cul­tural and chem­i­cal gi­ant with a broad ar­ray of prod­ucts. Fitch Ratings noted the com­bined Bayer would have a 25 per­cent share in some mar­kets, “al­most cer­tainly draw­ing reg­u­la­tory scru­tiny and pos­ing an­titrust ob­sta­cles.”

“It will ... cre­ate an in­no­va­tion engine for the next gen­er­a­tion of farm­ing.” — Hugh Grant, Mon­santo CEO

That’s be­cause the deal com­bines two of the six U.S. and Euro­pean com­pa­nies that dom­i­nate in agro­chem­i­cals.

“It will ... cre­ate an in­no­va­tion engine for the next gen­er­a­tion of farm­ing,” Mon­santo CEO Hugh Grant said.

The world’s pop­u­la­tion is ex­pected to jump by nearly 3 bil­lion peo­ple, to 9 bil­lion, by 2050. To­gether with the ef­fects of warmer tem­per­a­tures, more-severe storms, less land avail­able for farm­ing and the need to re­duce pol­lu­tion and green­house gas emis­sions from farm­ing op­er­a­tions, that is pres­sur­ing farm­ers to be more pro­duc­tive.

“It’s go­ing to take a lot of in­no­va­tion to en­sure that ev­ery­body can be fed,” and the com­bined com­pany will be able to speed up prod­uct im­prove­ments to help, Liam Con­don, head of Bayer Crop Sci­ence, told The As­so­ci­ated Press.

Af­ford­abil­ity also is an is­sue, Con­don said, as peo­ple in many poor coun­tries spend more than half their in­come on food, com­pared to 10 per­cent to 15 per­cent in the U.S.

Bayer and Mon­santo

both are well known to farm­ers and home gar­den­ers. Mon­santo sells seeds for fruits, veg­eta­bles, corn, soy­beans, cot­ton and other crops, plus heav­ily ad­ver­tised Roundup weed killer. Bayer sells chem­i­cal and bi­o­logic crop pro­tec­tion prod­ucts and the Bayer Ad­vanced gar­den chem­i­cals line.

Both com­pa­nies of­fer ser­vices in “dig­i­tal farm­ing,” help­ing farm­ers use data from sen­sors in their fields and satel­lites to im­prove crop yields by choos­ing the best seeds and ap­ply­ing just the right amount of chem­i­cals at the right time through­out the grow­ing sea­son.

Mon­santo is a top maker of seeds ge­net­i­cally mod­i­fied to re­sist drought, weeds and in­sects, among other “traits.” They’re not ac­cepted in Europe due to health con­cerns, so Mon­santo sells lit­tle in Bayer’s back­yard. Bayer is a ma­jor agri­cul­tural sup­plier in Europe, Asia and Africa, though it’s best known for pre­scrip­tion drugs such as blood clot-pre­ven­ter Xarelto and con­sumer health prod­ucts in­clud­ing Aleve pain re­liever and One A Day and Flint­stones vi­ta­mins.

“The over­laps are min­i­mal,” Grant told re­porters on a con­fer­ence call. He said the deal “rep­re­sented

the most com­pelling value for our share­hold­ers.”

Bayer and Mon­santo ex­ec­u­tives said they won’t iden­tify ar­eas of busi­ness over­lap be­fore reg­u­la­tors in the EU, U.S., Canada, Brazil and two dozen other coun­tries re­view the ac­qui­si­tion for po­ten­tial an­titrust is­sues. Bayer said it’s so con­fi­dent of ap­proval that it’s of­fered Mon­santo a $2 bil­lion breakup fee if the deal falls through.

Bayer and Mon­santo ex­ec­u­tives wouldn’t dis­cuss the fate of the Mon­santo name, but said the com­bined com­pany’s seeds and North Amer­i­can busi­ness will have head­quar­ters at Mon­santo’s St. Louis base.

The com­pa­nies also wouldn’t dis­cuss pos­si­ble job cuts. Those are stan­dard af­ter big merg­ers and im­plied in this one, given that 80 per­cent of the $1.5 bil­lion in syn­er­gies the com­pa­nies pre­dict af­ter three years will be cost cuts in ad­min­is­tra­tion, sales and mar­ket­ing.

Bayer said the trans-At­lantic tie-up should close be­fore the end of 2017. Mon­santo plans a share­holder vote on the deal in a few months.

In U.S. trad­ing, shares of both com­pa­nies closed up 0.6 per­cent, with Bayer at $104.85 and Mon­santo at $106.76.

SETH PERL­MAN — THE AS­SO­CI­ATED PRESS FILE

This photo shows the Mon­santo logo on dis­play at the Farm Progress Show in De­catur, Ill. Ger­man drug and farm chem­i­cal com­pany Bayer AG said it has signed a deal Wed­nes­day to ac­quire seed and weed-killer com­pany Mon­santo for about $66 bil­lion in cash.

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