The proposed deal has been approved by Monsanto’s board of directors and Bayer’s board of management and supervisory board.
However, the acquisition remains subject to regulatory review, including approval by Monsanto shareholders.
Both parties anticipate the merger to close at the end of 2017.
The deal is already generating scrutiny from trade groups. The American Soybean Association (ASA), and the National Corn Growers Association (NCGA) said they will be reviewing the proposal. The National Farmers Union (NFU) has criticized the tie-up.
“Our organization is very opposed,” said Zach Clark, government relations representative with the NFU. “We’ve been opposed to Dow-DuPont and Syngenta-ChemChina – and the list goes on.”
He told this publication: "It is important for feed crop producers to have access to more options for seeds and crop inputs."
Concerns about the potential acquisition include that it will raise prices, limit options and has the possibility to reduce innovation, said Clark.
“Innovation is critical to agriculture,” he said. “There is incentive to innovate, but there isn’t the driving force to innovate if these six companies go to three or four – we need to see small- or medium-sized companies come in with new products.”
He said price hikes could arise as a result of such a tie-up - the Bayer and Monsanto deal could limit regional availability of feed crop varieties at a time when commodity prices are low.
“We want vigorous regulatory oversight,” said Clark. “We submitted a letter to the DOJ on Dow-DuPont [sale] and I think we’ll do that on this.”
Regulatory review
The global agribusiness industry has seen several proposed mergers this year, but there is growing resistance to such consolidation trends.
The deal between Syngenta and ChemChina received US regulatory approval in mid-August, but the EU anti-trust regulator has stopped the clock on its review of the Dow Chemical DuPont merger citing a lack of information from both firms.
Furthermore, the US Department of Justice sued to block the Deere and Precision Planting merger at the end of August. Additionally, a Senate judiciary committee hearing on mergers in the agricultural sector has been set for September 20.
And Washington-based law firm, the Konkurrenz Group, recently produced a white paper that raises questions about the legality of a Bayer-Monsanto deal.
Combined seed portfolios, R&D expertise
The Germany-based Bayer is set to pay $128 per share in the all-cash transaction, which is a premium of 44% based on Monsanto’s closing share price from May 9 – the day preceding Bayer’s first written proposal, said the companies. And Bayer has agreed to a $2bn reverse antitrust break fee.
The deal is being financed through both debt and equity, they said. About $19bn is set to be raised through mandatory convertible bonds and a rights issue, and bridge financing has been established.
The merger will allow for increased innovation and collaboration to produce crops in a more sustainable manner, said Liam Condon, a member of Bayer’s board of management and head of the crop science division. The companies would be able to combine seed portfolios with crop protection and digital farming information.
The combined business would locate the global seeds and traits and the North American commercial headquarters in St Louis, Missouri while the main global crop protection and crop science facility would be in Monheim, Germany. Other locations would include a presence in Durham, North Carolina and a digital farming facility in San Francisco, California.
If the merger gets the approval from competition authorities, the companies would have a combined R&D budget of about €2.5bn, they said. Efforts are expected to focus on generating products based on information from digital farming applications.
“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,” said Hugh Grant, Monsanto CEO.
Soy, corn trade groups react
The ASA said its initial step will be to better understand what the potential sale would mean for soybean producers. The trade group is concerned about the potential implications of the deal for future innovation, research and marketplace competition, said Richard Wilkins, ASA president.
“If our analysis identifies areas of concern, ASA would urge divestiture of any segments of the proposed merger where competition would be significantly impacted," he added.
The NCGA voiced similar concerns with the proposed sale:
“Our primary concern with respect to any merger is how it may affect input costs – particularly given the current farm economy,” said Chip Bowling, president of the NCGA. “With respect to a previously announced merger, we completed a thorough analysis that informed the comments and information we provided to the US Department of Justice during their investigation into the merger. We would anticipate following a similar path with respect to this merger so that we can truly understand the merger’s impact on agricultural research, innovation, and competitive pricing of farm inputs.”