May 31, 2016

A breakdown of the potential Bayer-Monsanto merger

Monsanto announced a potential takeover by Bayer.

In recent years, there has been considerable merger and acquisition activity in the crop sciences industry. Following this trend, German multinational health care and agricultural industry leader Bayer AG recently made headlines when it announced its intentions to acquire Monsanto, a U.S.-based international agrochemical and agricultural biotechnology organization. Bayer stated that this deal, estimated at $62 billion, would support its current position as an innovation-driven life sciences company.

What about the potential for a merger-split deal?
Just last year, multinational chemical corporations DuPont and The Dow Chemical Company announced they would merge to create one of the largest agrochemical organizations in the world. With a market value of $103 billion, the newly combined company, DowDuPont, will split into three independent publicly traded companies that will focus on chemical, agriculture and specialty product industries, respectively.

"Each of these businesses will be able to allocate capital more effectively, apply its powerful innovation more productively, and extend its value-added products and solutions to more customers worldwide," Edward Breen, chairman and chief executive officer of DuPont, said.

Both companies' board of directors unanimously approved the deal, wherein the companies will enter into an all-stock merger of equals. Some industry analysts speculated that Bayer and Monsanto could pursue more of a merger-split deal, like DowDuPont. This form of merger would allow for more shareholder value than could be achieved through an outright takeover. 

Some skeptical about the potential deal
Markus Manns, a portfolio manager at Union Investment and Bayer shareholder, told The Wall Street Journal that this multibillion dollar deal may be too much of a financial stretch for the international chemical and pharmaceutical company, as it would be the largest in Bayer's 150-year history.

Previous to Werner Baumann's takeover as chief executive officer of Bayer two weeks ago, former CEO Marijn Dekkers had been aggressively trying to refocus the company on its life-sciences businesses, including pharmaceuticals, crop science and consumer health industries. Though Baumann took over a more risk-averse organization as a result, Bayer is still heavily ladened with significant debt.

"The deal doesn't fit into the overall strategy Dekkers laid out for a balanced, diversified life-science company," an insider source told The Wall Street Journal. "Baumann played these kinds of strategies through in his role as head of portfolio and strategy but they were obviously not pursued by Dekkers."

Following media reports about this potential transaction, Monsanto released a press release on May 18, stating that though it has received a nonbinding proposal from Bayer, there is no guarantee that any acquisition will occur. At this time, the Board of Directors of Monsanto is going over the terms of the deal that, if approved, will undergo strict regulatory approvals and conditions.