After months of talks, German chemicals giant Bayer AG has clinched a deal to buy US seeds leader Monsanto for US$66bn, the largest foreign takeover by a German company and the world’s biggest cash acquisition on record.
The deal, announced yesterday, will create the world’s largest seeds and pesticides company with combined sales of some US$25.8bn based on 2015 figures.
It combines Bayer’s strengths in agricultural chemicals with Monsanto’s strengths in seeds and traits and is expected to significantly expand Bayer in the US agriculture sector.
However, a Bayer takeover of Monsanto was likely to draw close scrutiny from anti-trust regulators because of the sheer size of the combined company and the control it would have over the global seeds and sprays markets, the BBC said.
The companies said they expected the deal to close at the end of 2017 but they will need the approval of some 30 competition agencies globally, which are likely to demand disposals for the acquisition to go ahead.
Bayer and Monsanto plan to locate their worldwide seeds and traits business at Monsanto’s St Louis, Missouri headquarters. The crop protection and overall crop science headquarters will be at Bayer CropScience’s Monheim, Germany base.
John Colley of Warwick Business School, UK said Bayer's hand was to some extent forced by recently agreed deals of ChemChina buying Swiss-based agribusiness Syngenta for US$44bn cash, rapidly followed by the US$130bn merger of Dow Chemicals with DuPont.
“Falling crop prices meant that demand and prices were declining for seeds and agricultural chemicals such as herbicides and pesticides. The industry is responding to adversity with a series of mergers which are expected to have three main results: cost reduction, less competition and growth.
"Bayer was clearly concerned at being left behind and was running out of options for merger targets. Clearly Bayer will realise cost savings from the acquisition but they have had to pay an enormous price for Monsanto at a 44% premium to the previously undisturbed share price.
"On top of that, integration will not be easy. In addition to the major culture clash between very different approaches to business, Monsanto is large and complex, which is a known contributory factor to a likely poor outcome. Reputational concerns also become an issue for Bayer with the GM foods campaign.”
Monsanto is primarily known for its GM seeds for crops including corn, soyabeans and cotton.