May 23, 2016

Little more than a week after it became known that Bayer was engaged in talks regarding a possible Monsanto acquisition. Today, news comes that, Bayer has offered an all-cash takeover bid of $62 billion for Monsanto in a deal that would create the largest agrichemical business in the world, valued at approximately $103 billion. The bid equals $122 per share and values Monsanto at 37% above its closing price on May 9, reports the Wall Street Journal.

The maneuver by Bayer comes after falling commodity prices created a wave of consolidations in the agrichemical and agri-inputs sector involving rivals, Dow Chemical, DuPont, and Syngenta. Bayer currently has a hand in the farming business, with the division accounting for €10.37 billion of its total sales of €46.3 billion last year, but the bulk of its focus has historically been on pharmaceuticals. The BBC reports that if the deal is successful, however, it would shift Bayer’s portfolio, making half its business derived from agriculture.

“The acquisition of Monsanto would be a compelling opportunity to create a global agriculture leader while reinforcing Bayer as a Life Science company with a deepened position in a long-term growth industry,” said Bayer’s chief executive Werner Baumann in a company statement. “Monsanto is a perfect match to our agricultural business. We would combine complementary skills with minimal geographic overlap.”

The deal would bring together leading Seeds & Traits, Crop Protection, Biologics, and Digital Farming platforms. Specifically, the combined business would benefit from Monsanto’s leadership in Seeds & Traits and Bayer’s broad Crop Protection product line across a comprehensive range of indications and crops, according to Bayer.

Bayer’s newly appointed CEO, Werner Baumann, told CNBC’s Squawk Box that he is not anticipating any regulatory roadblocks hindering the completion of the deal, noting, “The beauty of this combination is that both businesses are highly complementary, and it’s very much a growth story that is behind the combination. The product portfolios complement each other perfectly. The regional fit is really great.”

This offer marks the largest bid ever made by a German company after Daimler’s $38.6 billion bid made in 1998 for Chrysler, according to BBC.  Despite its size, Bayer states it will finance the bid through a combination of equity and debt including a share sale to cover approximately 25% of the total deal value, indicating a capital increase of about $15.4 billion Bayer’s chief financial officer, Johannes Dietsch told the Wall Street Journal.

Bayer states that the expected cash flow generated after closing, as well as Bayer’s proven ability to de-leverage after large acquisitions would enable rapid leverage recovery post-acquisition, and that the consolidation would lift Bayer’s core earnings by a mid-single-digit percentage, with synergies valued at $1.5 billion after three years.

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Lynda Kiernan