German pharmaceuticals giant Bayer AG and United States agricultural group Monsanto Co yesterday said they are in talks on a possible merger to create a global player in pesticides and seeds, after weeks of speculation about a possible tie-up.
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With Monsanto worth $US42 billion alone, an acquisition would likely be bigger than ChemChina’s February deal to buy Swiss agrichemicals firm Syngenta AG for $US44 billion and would face competition obstacles around the world.
Monsanto said its board was reviewing the proposal and there was no assurance a transaction would take place.
Germany’s Bayer BAYN, -8.12% on Thursday said it had approached St. Louis-based Monsanto about a possible deal.
An analyst on Wall Street said he was concerned about the approach by Bayer to takeover Monsanto.
Bayer, with a market value of $90 billion, said the merger would create “a leading integrated agriculture business”, referring to Bayer’s push for more synergies by combining the development and sale of seeds and crop protection chemicals.
Earlier this month, two of the largest USA grain traders refused to buy a new type of Monsanto’s genetically modified soybean because European Union regulators have yet to approve it.
Any deal between Bayer and Monsanto, meanwhile, could raise USA antitrust concerns because of the overlap in the seeds business, particularly in soybeans, cotton and canola, antitrust experts have said. Until the late 1970s, the company produced highly toxic polychlorinated biphenyls, also known as PCBs. Details weren’t disclosed, but the bid would likely be above Monsanto’s current market valuation of $42 billion, making it the largest-ever German takeover of a foreign company. Yet Bayer boss Werner Baumann is already struggling to convince his shareholders that an offer for the US seed group makes sense, even as his company’s shares have fallen 10 percent in a week.
While Bayer stock prices had initially increased when speculation over the Monsanto purchase began to circulate a few weeks ago, they fell over 9 percent this morning after the offer was announced to a two-and-a-half-year low. However, the businesses are largely complementary, with herbicides the only potential concern.
Consolidation in the seed and pesticide business is forcing Bayer’s hand, just as Monsanto felt it had to do its best to acquire Syngenta. It would also mark the latest round of consolidation in the industry, with Dow Chemical, DuPont and Syngenta striking their own deals during the past six months.
Bayer is one of Monsanto’s key rivals and the deal would form the largest supplier of seeds and pesticides on the globe.
The bid comes amid widespread challenges in the agribusiness industry, thanks to sliding commodity prices that’s prompted a 19 percent plunge in Monsanto’s share price over the past year.
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Monsanto, which is cutting its workforce amid falling profits, attempted to by Syngenta previous year.
