Dave Dickey
All of a sudden, the Committee on Foreign Investment in the United States has a very full agricultural dance card.
It turns out that China-based Shuanghui Group’s $4.7 billion takeover of U.S.-based Smithfield Foods in 2013 has opened a floodgate of agricultural merger and takeover offers.
Consider all that has happened in less than a year.
You have Monsanto’s failed effort to acquire Syngenta followed by ChemChina’s seemingly successful $43 billion takeover of the Swiss-based agrochemicals corporation, though that deal still needs CFIUS and U.S. Department of Agriculture review.
You have the $120 billion DuPont-DOW Chemical merger, which will likely result in three new businesses if CFIUS approves it.
And recently, you have the multinational German drug company Bayer offering $62 billion to buy St. Louis-based Monsanto. So far, Monsanto officials have rejected the deal, calling it “incomplete and financially inadequate.” Bayer’s May 10 all-cash offer valued Monsanto at $122 per share, about 37 percent higher than the $89.03 closing price from the day before.
For Monsanto to reject the offer as if it were something from the bargain basement seemed a little presumptuous, if not understandable.
As of May 31, Monsanto shares were trading at $112.47, having rallied in recent sessions in part because of stronger corn and soybean future prices.
Monsanto may think it can squeeze Bayer for more cash and other perks.
Still, Monsanto presents an especially juicy target for would-be raiders after what has been a very rocky 12 months.
In March, Monsanto cut its 2016 earnings forecast by 11 percent amid headwinds that included a stronger U.S. Dollar and lower commodity prices globally. The seed company is now in the process of laying off 3,600 employees, roughly 16 percent of its total workforce.
But Monsanto’s problems don’t stop there. The company also finds itself in a trade war over BT cotton seed technology with India and Roundup Ready soybeans with Argentina.
(Update: As of June 2, Monsanto and Argentina are in the process of hammering out a solution, but haven’t reached accord on how quickly Argentina has to report illegal seed use.)
And a key European regulation commission has still not come to an agreement to reauthorize the use of glyphosate, the chemical that kills weeds but not Monsanto’s Roundup Ready soybeans. The current authorization expires at the end of June.
That is some kind of ugly 12 months for Monsanto shareholders.
Now, we’re going to find out if Bayer wants to throw more cash Monsanto’s way.
J.P. Morgan told its customers in a recent note that it reckoned $150 per share might get some interest from Monsanto officials.
A J.P. Morgan analyst wrote: “We think that Monsanto would accept an offer from Bayer only if it no longer believed in its own long-term earnings capabilities.”
And there’s the rub because, in strong commodity years, it’s not all that hard to imagine Monsanto shares closer to the $180 watermark.
Reading between the lines, Bayer may represent Monsanto’s best opportunity to team up with a foreign multinational company. But that’s if the price is right. It wasn’t too long ago that Monsanto sought to acquire or partner with Bayer’s crop science unit.
One thing is certain: Global agrochemicals companies are racing to consolidate.
It remains to be seen if the Committee on Foreign Investment will hit the brakes anytime soon.
About Dave Dickey
Dickey spent nearly 30 years at University of Illinois at Urbana-Champaign’s NPR member station WILL-AM 580 where he won a dozen Associated Press awards for his reporting. For the past 13 years, he directed Illinois Public Media’s agriculture programming. His weekly column for Big Ag Watch covers agriculture and related issues including politics, government, environment and labor. Email him at dave.dickey@investigatemidwest.org.
This column reflects the writer’s own opinions and not those of Big Ag Watch.