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Update: Bayer Acquires Monsanto in Deal Worth $66 Billion

Companies to Combine After Months of Courting.

Bayer said on Wednesday that it will acquire Monsanto for about $66 billion in cash.  

“We are pleased to announce the combination of our two great organizations,” Werner Baumann, chief executive officer for Bayer AG, said in a statement. “This represents a major step forward for our crop science business and reinforces Bayer’s leadership position as a global innovation-driven life science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees, and society at large.”

Bayer has been courting Monsanto for months and recently raised its bid for the St. Louis-based company from $125 a share to $127.50 a share, with the companies finally settling on a price of $128 a share. It’s the latest in a long line of mergers and acquisitions in the agriculture space. ChemChina is in the process of buying Syngenta, Dow and DuPont will combine then split into three separate companies, and Canadian fertilizer companies Potash and Agrium said earlier this week that they’ll come together in a merger of equals. 

“The agriculture industry is at the heart of one of the greatest challenges of our time: how to feed an additional 3 billion people in the world by 2050 in an environmentally sustainable way,” said Liam Condon, a member of the board of management at Bayer and head of the company’s crop science division. “It has been both companies’ belief that this challenge requires a new approach that more systematically integrates expertise across seeds, traits, and crop protection including biologicals with a deep commitment to innovation and sustainable agriculture practices.”

Bayer will finance the transaction with a combination of debt and equity, and $19 billion is expected to be raised through convertible bonds and subscription rights. Bank of America/Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC, and JP Morgan will provide bridge financing totaling $57 billion, Bayer said. The transaction, already approved by both companies’ boards, is expected to close by the end of 2017.

If the transaction gets over regulatory and antitrust hurdles, its seeds and traits and North American headquarters will be in St. Louis, while its global crop protection and overall crop science headquarters will be in Monheim, Germany. It will have “an important presence” in Durham, North Carolina, as well as facilities globally, Bayer said.

How big will Bayer-Monsanto be?

In a conference call this morning, Bayer shared a series of slides outlining what the combined company’s sales will look like based on 2015 data.

The image below shows that 49% of Bayer-Monsanto’s sales will be in crop science. In U.S. dollars, the total sales will come out to $53 billion.

Bayer sales

In this image, you can see how Bayer-Monsanto will compare with other crop protection and seed companies. In U.S. dollars, Bayer-Monsanto sales for crop protection and seed will come out to $26 billion compared to Syngenta and ChemChina with almost $17 billion.

Bayer comparison

This last graphic shows the strength of Bayer and Monsanto in different regions. The total sales for North America will come out to $11.8 billion.

Bayer geography

Source: All charts provided by Bayer Crop Science.

opportunity to increase innovation

Monsanto’s seed and trait platforms are what appealed to Bayer. “The way we’ve always looked at it, from a Bayer point of view, is Monsanto has the best seed and traits in the industry,” says Condon. “We’ve always felt we have the most innovative crop protection portfolio.”

Condon believes the combination of seed and traits, crop protection, and the digital platforms will ultimately benefit the farmer and that the rationale behind the Bayer-Monsanto deal is different than other industry mergers. Being able to invest more in research and development was a clear attraction in the deal for Monsanto, says Robb Fraley, Monsanto’s executive vice president and chief technology officer.

“More investment in R&D drives more innovation and more products for growers that ultimately enable them to compete more successfully and more profitably,” says Fraley.

“This is clearly not a transaction driven by cost synergies,” says Fraley. “It's driven by the opportunity to increase innovation. The combined company will have an R&D budget north of $2.5 billion. I think it’s important that the ag industry goes through the changes it’s going through today. I look at it globally and I see, compared with almost any other industry on the planet, a very fragmented industry that often doesn’t have the scale and capability to try to bring the innovations together.

“The real winner in this transaction will be the grower who is going to see more innovation,” says Fraley. “By doing this we’ve raised the bar for the industry. I think it’s great that other companies are going through a similar type of consolidation effort. I don’t think they offer the innovation potential that this deal represents.”

 

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