DECATUR, Ill. (DTN) -- News that Monsanto had rejected Bayer's $62 billion acquisition bid shows the seed giant isn't going to be easily wooed.
The $62 billion cash ring Bayer tried to put on Monsanto's finger wasn't big enough.
As St. Louis native Yogi Berra was famous for saying, "It's like deja vu all over again." Monsanto made several failed attempts to bring Syngenta into a relationship last year. A $2 billion breakup fee eventually become part of those negotiations and that may one of the prenuptial assurances Monsanto is looking for to really get serious.
Kent Schulze, a seed industry analyst based in Minneapolis, told DTN he considered Bayer's initial offer to be both "bold and strategic." The Bayer $122-a-share bid valued Monsanto at 37% over its closing share price of $89.03 on May 9, the day before Bayer made a written proposal to the U.S.
Monsanto's news release stated their board of directors viewed the Bayer AG proposal as incomplete and financially inadequate, but the company added it was "open to continued and constructive conversations to assess whether a transaction in the best interest of Monsanto shareholders can be achieved."
Bayer executives responded to the rebuff by saying they found Monsanto's response encouraging. However, the pressure is now on the German pharmaceutical and chemical company to increase an offer that already has some Bayer investors fearing the transaction would strain the balance sheet and put too much emphasis on agriculture at the expense of health care.
The German company has been forthright about plans and continues to tout the benefits of the union. Under the proposed transaction, it plans to leave the global Seeds & Traits and North American commercial headquarters in St. Louis. For more details on the plans go to: www.advancingtogether.com
Liam Condon, head of Bayer's crop science division, acknowledged during a media call that the tie-up could possibly require some divestitures, but said it was too early to speculate on what those might be. The two companies overlap mostly in cotton and vegetables on the seed side. How Bayer's LibertyLink trait technology and glufosinate herbicide business would fit with Monsanto's Roundup Ready trait system and new dicamba herbicide traits is another looming question.
Schulze worked in the seed industry for more than five decades and has spent a good share of the past decade tracking its fortunes. He likes to point out that the seed/chem companies operating today got there through mergers and acquisitions.
Monsanto started life as a chemical company that bought its way into seed. Back in 1996, DeKalb Genetics CEO was quoted as saying (in one of my articles) that [DeKalb] would never sell out to "the mama bear." The ink was barely dry on that statement when Monsanto announce it had purchased a majority percentage of DeKalb. Monsanto eventually went on to purchase the entire company in 1998. Subsequent strategic acquisitions included Asgrow, Calgene and Holden's Foundation Seeds. Untold family and regional seed companies also got caught in the wave of seed consolidation in the 1990s.
Bayer purchased Aventis in 2001; farmers best remember that company for the StarLink corn debacle. Aventis, was formed in 1999 by the union of France's Rhone-Poulenc and Germany's Hoechst.
For that matter, Monsanto and Bayer have had past relations. Mobay Chemical Company, a joint venture of Monsanto and Bayer to market polyurethanes was founded in 1954. It was antitrust action initiated by the U.S. Department of Justice that eventually resulted in Bayer buying Monsanto's portion of that business.
At Syngenta Seeds headquarters outside of Minneapolis, the names of absorbed companies are etched on the walls of one conference room -- an effort executives have said to remember roots such as Ciba, Geigy, Sandoz, Northrup King, Funk Seeds, ICI and others. What many people don't realize is Syngenta's current suitor, ChemChina, already owns 60% of ADAMA, the largest manufacturer and marketer of off-patent crop protection products.
Some of this is ancient history. The point is the seed industry has been in a constant state of change since the 1960s. Consolidation ratcheted up after seed and herbicides became linked through genetic traits in the 1990s.
Now, as we approach was appears to be another restructuring of the family tree, we need to keep asking hard questions about what these new relationships mean to farmers and scientific innovation.
"Let the games begin," Schulze said. "Others in the industry -- such as KWS and Limagrain -- are likely wondering about their own market moves." He noted that companies with regional strategies could actually end up gaining some ground through acquisitions or benefiting as farmers seek a more local approach to seed purchasing.
For example, two weeks ago, Forage Genetics International acquired all of the commercial rights for existing alfalfa research and licensed Roundup Ready alfalfa traits and technology from Monsanto. Bayer recently spun off its entire home and garden solutions business for an undisclosed amount to SBM Developpement, an independent and family-owned France-based group of companies that develops, formulates and distributes ranges of crop solutions for professionals and consumers.
Still, there are many unknowns in what will happen in all these transactions and if they will pass the antitrust sniff test. Although the current proposed marriages don't sway seed market share all that much, the purchase of Monsanto would shift the majority of U.S. seed sales into the hands of multinationals and that could be a sticking point.
One point remains constant regardless of change: "Seed is the first link in the food chain. That makes it important," Schulze said.
Pamela Smith can be reached at Pamela.firstname.lastname@example.org
Read her on Twitter @PamSmithDTN
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