Bid for Monsanto Confirmed

Bayer Initiates Takeover Talks

Pam Smith
By  Pam Smith , Crops Technology Editor
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Further consolidation talks within the seed and chemical industry have Bayer courting Monsanto. DeKalb is one of Monsanto's many seed brands. (DTN photo by Pamela Smith)

DECATUR, Ill. (DTN) -- More merger possibilities are unfurling. Monsanto Company has disclosed that it has received an unsolicited, non-binding acquisition proposal from Bayer AG. In turn, Germany-based Bayer also confirmed Bayer executives have met with Monsanto executives to privately discuss a negotiated purchase of Monsanto Company.

Speculation regarding the possible combination has been swirling in the news for the past week. Neither company would disclose details of the offer or whether Monsanto is receptive to the deal.

Monsanto in a statement said its board of directors is reviewing the proposal in consultation with its financial and legal advisers. The company also stated it would have no further comment until its board of directors has completed its review.

"There is no assurance that any transaction will be entered into or consummated, or on what terms," the company release stated. Morgan Stanley & Co. and Ducera Partners are acting as financial advisers, and Wachtell, Lipton, Rosen & Katz is acting as legal advisers, to Monsanto.

Should the bid succeed, a combination of the companies could boast $67 billion in annual sales and create the world's largest seed and crop-chemical company. The deal would also further consolidate an agricultural sector that has seen major rivals link up over the past six months. Although the transactions are not yet complete, Dow Chemical Company has agreed to merge with DuPont Company and ChemChina has inked a purchase of Syngenta.

Monsanto set the consolidation dominos in motion when it took several runs and failed to purchase Syngenta last year. Whether regulators will allow those transactions and any further consolidation in this condensed industry is still at question.

However, Kent Schulze, a Minneapolis-based seed industry analyst, said Bayer's strength in seed treatments, fungicides, insecticides, microbials and herbicides fits together fairly well with Monsanto's dominance in seed. "The overlap on the seed side lies mostly in cotton and vegetable seeds," said Schulze. Bayer's LibertyLink herbicide traits and glufosinate herbicide have become more popular with farmers as weeds have increasingly become resistant to glyphosate, the active ingredient in Monsanto's Roundup herbicide. However, Monsanto has already stacked LibertyLink into some of their new dicamba-tolerant cotton varieties.

In 2014, Bayer AG converted to a total life science company with concentration on plant, human and animal health. Crop science products accounted for about 22% of the company's business, according to its 2015 annual report.

Monsanto's $15 billion in seed and herbicide sales could make agriculture about 40% of the combined entity's business, with the rest coming from pharmaceuticals and consumer health products. Schulze estimates Monsanto had a 36.7% share of the U.S. corn seed business and 29.5% of the soybean business in 2015. Although Bayer has recently gotten into the soybean seed business, they barely rate a blip on the market share charts compared to Monsanto, DuPont, Syngenta, Dow and the various regional brands.

However, Monsanto's corporate culture differs from Bayer's more conservative nature, Schultz noted. For example, Bayer's LibertyLink technology was ready to go to market before Roundup Ready in the 1990s. "Bayer hesitated and Monsanto moved aggressively," Schulze recalled.

Declining farm incomes have cut into profits for companies such as Monsanto. The St. Louis-based firm issued a profit warning earlier this year, and Monsanto stock had been sliding before reports of Bayer's interest. Monsanto shareholders are apt to like thoughts of a reversal.

However, a Dow Jones report Thursday morning indicated it may be the Bayer shareholders who get a headache over the deal. Bayer's stock was poised to notch its biggest daily drop in seven years at the prospect of a purchase of Monsanto with a current market capitalization value of more than $42 billion. Any purchase would likely require a mix of cash and stock and might be a difficult pill for Bayer stockholders to swallow.

Pamela Smith can be reached at Pamela.smith@dtn.com

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(AG/CZ)

Pam Smith