New York/Frankfurt | Reuters — German drugs and crop chemicals company Bayer has won over U.S. seeds firm Monsanto with an improved takeover offer of US$66 billion including debt, ending months of wrangling after increasing its bid for a third time.
The $128 a share deal announced on Wednesday, up from Bayer’s previous offer of $127.50 a share, is the biggest of the year so far and the largest cash bid on record (all figures US$).
The transaction will create a company commanding more than a quarter of the combined world market for seeds and pesticides in a fast-consolidating farm supplies industry.
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However, competition authorities are likely to scrutinise the tie-up closely, and some of Bayer’s own shareholders have been critical of a takeover plan which they say is too expensive and risks neglecting the company’s pharmaceutical business.
“Bayer’s competitors are merging, so not doing this deal would mean having a competitive disadvantage,” said Markus Manns, a fund manager at Union Investment, one of Bayer’s top 12 investors, according to ThomsonReuters data.
He said few people had expected a deal to be agreed at less than $130 a share, but that there were regulatory risks and the acquisition would also leave Bayer with less scope to invest in healthcare, where rivals are consolidating too.
The transaction includes a break fee of $2 billion that Bayer will pay to Monsanto should it fail to get regulatory clearance. Bayer expects the deal to close by the end of 2017.
The details confirm what a source close to the matter told Reuters earlier.
At 2:30 p.m. GT, Bayer shares were up 2.4 per cent at 95.52 euros (C$141.07). Monsanto’s were up 0.7 per cent at $106.80 (C$140.60).
Baader Helevea Equity Research analyst Jacob Thrane, who has a “sell” rating on Bayer shares, said the German company was paying 16.1 times Monsanto’s forecast core earnings for 2017, more than the 15.5 times ChemChina agreed to pay for Swiss crop chemicals firm Syngenta.
He also said there was uncertainty over what the combined company would look like as regulators might demand asset sales.
Some analysts said the deal could face a rough ride from U.S. politicians opposed to a key supplier of U.S. agriculture falling into foreign hands and from farmers concerned a reduction in competition could lead to higher prices.
Bayer said it needed approval from antitrust authorities in 30 jurisdictions, but its initial feedback from both regulators and politicians was encouraging.
The German firm said it expected the deal to boost core earnings per share in the first full year following completion, and by a double-digit percentage in the third year. It is targeting $1.2 billion in annual cost synergies and $300 million in sales synergies after three years.
One-stop shop
Bayer’s move to combine its crop chemicals business, the world’s second largest after Syngenta, with Monsanto’s industry leading seeds business, is the latest in a series of major tie-ups in the agrochemicals sector.
The German company is aiming to create a one-stop shop for seeds, crop chemicals and computer-aided services to farmers.
That was also the idea behind Monsanto’s swoop on Syngenta last year, which the Swiss company fended off, only to agree later to a takeover by China’s state-owned ChemChina.
Elsewhere, U.S. chemicals giants Dow Chemical and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.
“The combined business will be ideally suited to cater to the requirements of farmers… because we have equal and meaningful strength in both crop protection, seeds and traits, and digital and analytical tools,” Bayer CEO Werner Baumann said on a call with analysts.
The deal will be the largest ever involving a German buyer, beating Daimler’s tie-up with Chrysler in 1998, which valued the U.S. carmaker at more than $40 billion. It will also be the largest all-cash transaction on record, ahead of brewer InBev’s $60.4 billion offer for Anheuser-Busch in 2008.
Bayer said it was offering a 44 per cent premium to Monsanto’s share price on May 9, the day before it made its first written proposal.
It plans to raise $19 billion to help fund the deal by issuing convertible bonds and new shares to its existing shareholders.
It also said BofA Merrill Lynch, Credit Suisse , Goldman Sachs, HSBC and JP Morgan had committed to providing $57 billion of bridge financing and that it was targeting an investment grade credit rating after completion of the deal.
Bayer and Monsanto were in talks about a possible tie-up as early as March, which culminated in Bayer’s initial $122 per-share proposal in May.
Antitrust experts have said regulators will likely demand the sale of some soybeans, cotton and canola seed assets as a condition for approving the deal.
The two companies said their merged agriculture business would have its global seeds and traits and North American commercial headquarters in Monsanto’s U.S. home base of St. Louis. The merged global crop protection and overall crop science headquarters would be in Monheim, Germany, while the combined company’s “digital farming” activities would be based in San Francisco.
The two companies said they would also keep “an important presence” in Durham, North Carolina — the current home base for Bayer CropScience in the U.S. — and in “many other locations throughout the U.S. and around the world.”
Bayer CropScience’s Canadian operations are based in Calgary, with seed breeding operations in Saskatoon, seed processing at Lethbridge and formulation and distribution facilities in Regina.
Monsanto’s Canadian business, meanwhile, is based in Winnipeg, with production facilities at Lethbridge and Cranbrook, B.C., research farms at Edmonton, Saskatoon and Yorkton, Sask., research facilities at Guelph, London, Ont. and Oakville, Man., a seed breeding operation at Carman, Man. and a corn and soy distribution centre at Tillsonburg, Ont.
Both Monsanto and Bayer CropScience also maintain Canadian regulatory offices in Ottawa and operation centres for Eastern Canada at Guelph.
— Reporting for Reuters by Greg Roumeliotis in New York and Ludwig Burger in Frankfurt; additional reporting by Arno Schuetze and Christoph Steitz. Includes files from AGCanada.com Network staff.
