September 14, 2016

After months of negotiations and three bid increases, Bayer has been successful in reaching an agreement with Monsanto for a $66 billion takeover of the company.

The offer, which is a record cash takeover, values Monsanto at $128 per share and will create a true global giant that will control more than 25 percent of the global seed and agri chemical market.

“We are pleased to announce the combination of our two great organizations,” said Werner Baumann, CEO of Bayer AG. “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….”

Talks between the two companies began earlier this year with an initial offer by Bayer of $122 per share for Monsanto, followed by a second raised offer of $125 per share, and a third at $127.50 per share – all of which were rejected as Monsanto was said to be targeting a value of $130 per share.

“Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders at Monsanto,” said Hugh Grant, chairman and chief executive officer at Monsanto. “We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration.”

Financing

Bayer will finance the deal through a combination of debt and equity. The $19 billion of dedicated equity will be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights. An additional $57 billion in bridge financing is being committed by BofA, Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC, and JP Morgan.

Monsanto’s Board of Directors, Bayer’s Board of Management and Bayer’s Supervisory Board have unanimously approved the agreement, however, Monsanto shareholders still need to grant approval.

Speaking of Approval…

Although negotiations have ended in a successful agreement between the two companies, and approval has been granted by their boards, regulatory bodies will no doubt thoroughly scrutinize a deal of this magnitude, with antitrust regulators expected to insist upon the sale of certain soybean, cotton, and canola seed assets as a condition of approval, according to Reuters.

The deal includes a break-fee of $2 billion that Bayer will be required to pay Monsanto if regulatory approval is denied, however Bayer expects the transaction to close by the end of 2017.

Additionally, there is pushback from other quarters as well.

If successful, a deal between Bayer and Monsanto would have a significant effect on Bayer’s structure, making about half of the group’s sales originate from agriculture instead of health care – a fact that is causing consternation with some of the group’s investors who have traditionally viewed the company as a pharmaceutical entity.

“We knew that Bayer would have to bid higher and this offer is probably getting closer to succeeding, but it doesn’t change our view that it presents significant risks to shareholders,” Greg Herbert, co-manager of the Jupiter Global Equity Income Fund told Reuters.

“The company will be left with a highly geared balance sheet and the management effort to integrate the two businesses could easily lead to the larger pharmaceutical business being neglected.”

A New Era of Agriculture

Despite the challenges that the two companies still face, key players see the deal as bringing together two different but complimentary businesses that will create a wide platform of solutions and benefits for the world’s farmers.

“We are entering a new era in agriculture – one with significant challenges that demand new, sustainable solutions and technologies to enable growers to produce more with less,” said Grant. ”This combination with Bayer will deliver just that – an innovation engine that pairs Bayer’s crop protection portfolio with our world-class seeds and traits and digital agriculture tools to help growers overcome the obstacles of tomorrow.”

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Lynda Kiernan