The urban press, among others, is modestly agog at the merger between Monsanto and German chemical maker Bayer this week. Bloomberg reports that there are things to like about the deal since it could help farmers boost yields to confront challenges from global warming and rising food demand from a fast-growing global population.
It also thinks it could increase consumers’ access to more affordable and healthier food options while helping farmers “limit their chemical use and environmental impact.” Still, the press is having trouble guessing what the broad range of future impacts might be, since the merger comes at a time of crop prices at “painfully low levels for many farmers.”
The scale of the deal drew considerable attention of its own. After four months of courtship, Leverkusen, Germany-based Bayer AG, said Monsanto Co. accepted its third offer. In addition to the $57 billion price for shareholders, Bayer is assuming $9 billion in Monsanto debt. It will pay Monsanto shareholders $128 per share, $6 above its initial offer and a 44% premium over the St. Louis, Missouri company’s closing price before rumors of a bid emerged.
The deal will result in a “global agricultural and chemical giant” with a broad array of products, Bloomberg said. Fitch Ratings noted the combined Bayer would have a 25% share in some markets, “almost certainly drawing regulatory scrutiny and posing antitrust obstacles,” since the deal combines two of the six U.S. and European companies that dominate in agrochemicals.
Monsanto CEO Hugh Grant told the press that world population is expected to jump by nearly 3 billion people by 2050 amid effects of warmer temperatures, more-severe storms, less land available for farming and the need to reduce pollution and greenhouse gas emissions—all pressures on farmers to be more productive.
Bayer Crop Science officials said that affordability also is an issue, since people in many poor countries spend more than half their income on food, compared to 10 percent to 15 percent in the United States.
Both companies also offer services in “digital farming,” helping farmers use data from sensors in their fields and satellites to improve crop yields by managing their seed and chemicals precisely, Bloomberg noted. Monsanto is a top maker of seeds genetically modified to resist drought, weeds and insects, among other “traits” but are not accepted widely in Europe, so Monsanto sells little in Bayer’s backyard.
Bayer is a major agricultural supplier in Europe, Asia and Africa, though it’s best known for prescription drugs such as blood clot-preventer Xarelto and consumer health products including Aleve pain reliever and One A Day and Flintstones vitamins.
“The overlaps are minimal,” Monsanto CEO Hugh Grant told reporters on a conference call. He said the deal “represented the most compelling value for our shareholders.”
Bayer and Monsanto executives said are not prepared to identify areas of business overlap before regulators in the European Union (EU), U.S., Canada, Brazil and two dozen other countries review the acquisition for potential antitrust issues. Bayer said it’s so confident of approval that it’s offered Monsanto a $2 billion breakup fee if the deal falls through. The two companies declined to discuss either the fate of the Monsanto name or possible job that seem to be implied, given that “80% of the $1.5 billion in synergies the companies predict after three years will be cost cuts in administration, sales and marketing,” Bloomberg said.
Much of the urban press seem to be more worried most about impacts on farmers – at least some farmers. The New York Times talked with some who insisted they are producing now at a loss — including one that farms 7,000 acres and says he can’t cut costs fast enough.
Then, the Times opines that “every merger creates the possibility of higher costs for farmers.”
“It’s just like any other industry that consolidates,” one farmer says, “they tell the regulators they’re cost-cutting, and then they tell their customers they have to increase pricing after the deal’s done.”
Senator Chuck Grassley, R-Iowa, announced merger hearings in Washington to be held next week, and certainly that will be only the first of several. Of course, the companies deserve and expect significant scrutiny.
The companies say they are merging to diversify and increase growth and research capabilities and likely they will. However, there is no guarantee that these claims will pass muster. Some may have to sell assets to allay antitrust concerns.
Certainly it will be interesting to watch these hearings, and the firms’ responses in this extremely politicized year. In general, producers seem to believe in the benefits of technology, but would like to have access to it more cheaply. How these mergers affect that prospect will be examined closely this fall, a process producers should watch carefully as it proceeds, Washington Insider believes.