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How Digital Ag Is Helping to Drive the Proposed Bayer-Monsanto Deal

Digital Ag's Role in This Shows How Quickly It is Transforming Farming.

If the Bayer purchase of Monsanto becomes reality, it’s another indicator that digital agriculture is a game changer similar to what transgenic crops were 20 years ago.

Digital agriculture’s rise in farming is akin to Uber’s acceleration in transportation, says Mark Gulley, principal of New York City-based chemicals consultancy Gulley & Associates LLC. Businesses that don’t see these trends coming – such as taxi services in the case of Uber – quickly get rolled.  

“They will look up and say, ‘What happened?’ Well, it happened fast,” says Gulley. “When you have ag biotech, autosteer, and now digital ag, those are big things that have long-term importance.”

How Digital Ag Drives This Deal

In this case, Gulley’s hypothesis is that Monsanto’s ownership of The Climate Corporation is shaping up to the integrator of the Monsanto-Bayer deal. This business component of Monsanto’s enables farmers to understand yield-limiting factors by comparing farm data layers and then collecting and sending field data from their tractor and combine cabs to the cloud.

The definition of integration, though, has evolved since August 2015, when Monsanto unsuccessfully sought to buy Syngenta.

“Syngenta, as the company defined it (integration), was the co-marketing of seed and CPCs (crop protection chemicals),” he says.  “It was a marketing collaboration in that ‘we will market these products together with a joint sales force,’ ” he says.

Monsanto, though, said integration would center on research and development. “The company said something like, “Let’s develop products together and then we will market them.’”

After the deal collapsed, though, Monsanto officials took a different approach at a company investor day, saying integration centered on digital agriculture, says Gulley.

“So, the definition of integration keeps drifting around,” he says. “It is still unclear.”

“Now, Bayer has picked up on that and given another definition in that this combination would be end to end (marketing-research and development-digital) agriculture,” says Gulley.

This end-to-end approach can show antitrust authorities such a deal has minimal overlap between businesses. It also shows there are substantial synergies to the deal. Most appealing to investors is that they are revenue, not cost synergies.

It also inserts digital ag into the integration equation between seeds and crop-protection products that’s becoming a strategic necessity, Gulley says

Heads turned when Monsanto paid $930 million for The Climate Corporation in October 2013. Gulley believes Bayer must be placing a much higher value on Monsanto’s digital ag platform.

“Monsanto has said digital ag is the integrator,” says Gulley. “So, Bayer must be placing a high value on Monsanto’s digital ag platform, as much as $5 to $10 billion.”
That’s the difference between Monsanto’s current intrinsic value and Bayer’s current bid, he says.

So Will It Fly?

Both companies have put much effort into this.

“This has been a slow and deliberate, back-and-forth, nonacrimonious, and certainly a business-oriented process,” says Gulley.

Hurdles remain, though. Some in the merger and acquisition community don’t think it will go through, due to the current wide spread between Monsanto’s current share price ($106.07 closing price of September 6) and Bayer’s $127.50-per-share asking price.

Regulatory and antitrust challenges also exist. That’s not only the case in the U.S., but in areas like Europe, too.

Still, all this is an example, though, of how quickly digital agriculture is changing farming.

“I think digital ag is going to be very much of a deflationary force in agriculture,” says Gulley. “Farmers will be so much more productive in terms of information and yield benefits that they get from seed.”

 

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