The U.S. Department of Justice has given Bayer AG the go-ahead for its multibillion-dollar takeover of Monsanto Co., around two years after the company made its first approach in May 2016. The deal is the largest foreign acquisition by a German company ever, and Bayer had to agree to a series of concessions amounting to about $9 billion to get U.S. and EU regulatory approval.
Following a monthslong courtship and two rebuffed bids, Monsanto agreed in September 2016 to an all-cash offer of $57 billion, or $128 a share, around 5% higher than Bayer’s initial $122-a-share bid. Including debt, the deal’s value is around $62.5 billion. The sweetened offer represents a 44% premium over Monsanto’s closing share price on the day before Bayer’s first written proposal. Bayer’s shareholders were largely content with the price. After all, some analysts predicted that the company would have to offer as much as $135 a share.
Bayer has secured a $57 billion syndicated loan to finance the deal and Bernstein expects the company to announce a rights issue of around $8.7 billion. Bayer had originally estimated it would need to raise around $19 billion through equity fundraising, including the rights issue and an issuance of mandatory convertible bonds.
Strategically, Bayer’s takeover is a long-term bet on the $100 billion seed-and-crops market, which is set for further growth as the global population continues to expand. While there is some overlap between the companies’ operations, Monsanto’s portfolio, which is skewed toward seeds and crop genes, should complement Bayer’s strength in pesticides.
Geographically, the deal will allow Europe-focused Bayer to extend its reach into the U.S. and Latin America, where Monsanto is an established presence and where regulations for genetically modified seeds are less stringent.
In financial terms, Bayer says the combined business would have generated sales of EUR23 billion in 2015, and synergies should provide a $1.2 billion annual boost to earnings before interest, taxes, depreciation and amortization from 2022 onward. Bayer’s earnings per share should also receive an immediate bump, with double-digit accretion expected in the third full year after closing.
The deal drew heightened scrutiny from regulators on both sides of the Atlantic amid fears that further consolidation of the agriculture sector would slow innovation while driving up prices and reducing options for farmers.
Following the 2017 merger that formed DowDuPont Inc. and China National Chemical Corp.’s takeover of Syngenta, regulators were wary of letting through another merger that would concentrate most of the world’s seed supply effectively in the hands of three companies.
Bayer and Monsanto pitched their deal as a way to more tightly integrate research and deliver better products to farmers, but agricultural groups in several countries--including Brazil and the U.S.--petitioned lawmakers to block it.
Although it initially expressed “serious doubts” over the deal, the European Commission gave conditional approval on March 21, after Bayer agreed to sell off more than $7 billion of assets to rival BASF SE. The divestments include Bayer’s soybean and cottonseed businesses, its entire vegetable-seed unit and its glufosinate weedkiller, which competes with Monsanto’s Roundup. The commission subsequently agreed to let Bayer keep Monsanto’s NemaStrike brand of seed-protection chemicals in return for Bayer offloading its own seed-protection lines to BASF. Bayer will also sell its entire digital-agriculture portfolio to BASF, which will then license certain products back to Bayer.
The DOJ conditionally approved the deal on May 29, requiring Bayer to increase the scope of its divestments to about $9 billion, including the sale of Bayer’s seed business to German competitor BASF SE. The divestitures Bayer agreed to are the largest ever in a U.S. merger-approval settlement, the DOJ said. Bayer said it now only requires approval from Canadian and Mexican authorities, which it expects to receive very soon.
Compiled by Nathan Allen at nathan.allen@dowjones.com
