St. Louis-based seeds company Monsanto agreed on Wednesday to a $66 billion all-cash takeover bid from German pharmaceuticals maker Bayer.
The deal ends month of speculation that first started when Bayer made an unsolicited offer to buy Monsanto in May, but it is far from final. Combining Bayer Ag’s pesticides business with Monsanto’s seeds platform creates one of the biggest agribusiness companies in the world at a time where the industry is consolidating as a remarkable pace.
The deal — which Bayer CEO Werner Baumann described as “truly historic” — will still need to clear scrutinizing antitrust hurdles in the United States and elsewhere if it is to become official.
A combination of Monsanto and Bayer would be worth about $26 billion in total revenue, financial reports show. The deal is primed to be the largest in Bayer’s history.
“What we do is good for consumers,” Baumann said during the formal announcement Wednesday. “We help to produce efficient, safe, healthy and affordable food.”
Monsanto CEO Hugh Grant said Bayer’s winning bid — valued at $128 per share — represented the most compelling offer for its shareholders.
During the announcement, the executives underscored how a combination would “create a global leader in agriculture” that could service farmers in everything from planting and seed choice to data collection and crop protection.
Currently, less than 10 percent of Bayer’s overall revenue comes from its seeds business, with most of its money coming from pesticides. Monsanto makes about two-thirds of its revenue on its seed and trait platforms in comparison.
“We are entering a new era in agriculture — one with significant challenges that demand new, sustainable solutions and technologies to enable growers to produce more with less,” Grant said in a statement. “This combination with Bayer will deliver just that.”
Financial reports show that Bayer netted about $4.6 billion in its 2015 fiscal year.
Monsanto took in about $2.3 billion in net income.
Monsanto and Bayer spend hundreds of millions of dollars every year on research and development, financial reports show. Together, the companies would have a joint research budget of about $2.8 billion.
Bayer — maker of the popular painkiller aspirin — reported it will finance the potential deal with a combination of debt and equity. Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, HSBC and Credit Suisse will provide $57 billion through bridge financing.
As part of the deal, Bayer said it will keep a strong presence in the United States. All major headquarters will stay in place, including Monsanto’s global seeds headquarters in St. Louis.
A rapidly consolidating, uncertain industry
Wednesday’s announcement means that Bayer and Monsanto join at least six other agriculture corporations working on consolidation moves.
Dow and DuPont are planning a $120 billion merger that would result in three new companies including an agriculture company with an estimated annual revenue of $19 billion. Swiss agrochemicals company Syngenta and state-owned China National Chemicals Corporation are moving forward with a $43 billion deal of their own.
And Canadian fertilizer giants Agrium Inc. and Potash Corp. of Saskatchewan Inc. confirmed Monday plans to merge in a deal that would create a crop-nutrient behemoth worth about $27 billion.
Deals of this magnitude need to first pass through international regulatory approvals to make sure they don’t create unfair monopoly conditions. Under normal circumstances, any one of the previous deals would have a decent chance of earning approval without too much hassle, according to analysts. That changes when an entire industry is experiencing widespread consolidation.
Critics say that rapid consolidation will leave farmers with few options when deciding where to buy their seeds and pesticides. Some estimates, for example, claim a combined Bayer-Monsanto would control about 30 percent of the global seeds market. That much sway will allow companies to artificially increase prices, the critics argue.
Hundreds of farmers rallied this week against consolidation in Washington D.C., meeting with federal policymakers and urging them to form hearings to examine negative consequences to U.S. food and agriculture.
“For the last several days our family farm and ranch members have been on Capitol Hill asking members of Congress to conduct hearings to review the staggering amount of pending merger deals in agriculture today,” said National Farmers Union President Roger Johnson in a statement. “We will continue to express concerns that these megadeals are being made to benefit the corporate boardrooms at the expense of family farmers, ranchers, consumers and rural economies.”
Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) announced that the U.S. Senate will oversee a hearing on seed and chemical industry consolidation at some point in late September.
Despite antitrust challenges, Monsanto and Bayer executives expect the deal to close by the end of 2017. Still, those optimistic expectations come after the U.S. Justice Department recently stopped a potential deal between Monsanto and John Deere where the equipment manufacturer would buy Monsanto’s precision planting department.
The Committee on Foreign Investment in the United States approved ChemChina’s takeover of Syngenta at the end of August.
If the Bayer-Monsanto deal doesn’t clear regulatory frameworks, Bayer has committed to paying a $2 billion reverse antitrust breakup fee.
“Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders,” Grant said.