ST. LOUIS — Bayer and Monsanto announced, in mid-September, that they signed a definitive merger agreement under which Bayer will acquire Monsanto for $128 per share in an all-cash transaction. Monsanto’s Board of Directors, Bayer’s Board of Management and Bayer’s Supervisory Board have unanimously approved the agreement. Based on Monsanto’s closing share price on May 9, the day before Bayer’s first written proposal to Monsanto, the offer represents a premium of 44 percent to that price.
Enhanced solutions for growers
The combined business will bring together Monsanto’s Seeds and Traits and Climate Corporation platform along with Bayer’s Crop Protection product line. The combination also brings together both companies’ R&D technology platforms, with an annual pro-forma R&D budget of approximately EUR 2.5 billion.
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The combined business will provide customers with more solutions and an optimized product suite based on analytical agronomic insight supported by digital farming applications resulting in improved sourcing, higher yield, better environmental protection and sustainability. According to Liam Condon, member of the board of management of Bayer AG and head of the crop science division, the combination of companies and products will help with the challenge of feeding a growing population in a sustainable way.
Value creation
Pro forma sales of the combined agricultural business amounted to EUR 23 billion in calendar year 2015. The combined company will be well positioned to participate in the agricultural industry with significant long-term growth potential. Bayer expects the transaction to provide its shareholders with accretion to core EPS (earnings per share) in the first full year after closing and a double-digit percentage accretion in the third full year.
Bayer has confirmed sales and cost synergies assumptions in due diligence and expects annual EBITDA contributions from total synergies of approximately USD 1.5 billion after year three, plus additional synergies from integrated solutions in future years.
Financing and closing conditions
Bayer intends to finance the transaction with a combination of debt and equity. The equity component of approximately USD 19 billion is expected to be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights. Bridge financing for USD 57 billion is committed by BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan.
The acquisition is subject to customary closing conditions, including Monsanto shareholder approval of the merger agreement and receipt of required regulatory approvals. Closing is expected by the end of 2017. In addition, Bayer has committed to a USD 2 billion reverse antitrust break fee.
Headquarters and employees
The combined agriculture business will have its global Seeds and Traits and North American commercial headquarters in St. Louis, Missouri, its global Crop Protection and overall Crop Science headquarters in Monheim, Germany, and a presence in Durham, North Carolina, as well as many other locations throughout the U.S. and around the world. The Digital Farming activities for the combined business will be based in San Francisco, California.
Opposition
National Farmers Union President Roger Johnson issued a statement condemning the merger shortly after it’s announcement. “Consolidation of this magnitude cannot be the standard for agriculture, nor should we allow it to determine the landscape for our future,” said Johnson. This would be the fifth major deal in agriculture in the last year, he said citing the Syngenta/ChemChina acquisition and proposed mergers between Dow/DuPont, Potash Corp./Agrium and John Deere/Precision Planting LLC.
Johnson said, NFU and its members express concerns that these “megadeals” are benefiting the corporate boardrooms and hurting the family farmers, consumers and economies.
Undecided
Both the National Corn Growers Association and the American Soybean Association released similar statements, stating they would further analyze the impacts this merger would have on corn and soybean farmers from input costs to research and development of products.
The American Farm Bureau Federation challenges the Department of Justice to review the overall business climate that has encouraged recent agriculture companies to merge rather than evaluating them in isolation, said Bob Young, chief economist for AFBF, in a statement on behalf of AFBF.
Young added, AFBF’s farmer members are particularly interested in how these deals affect research and development funds.
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