Bayer, the German chemicals maker, clinched a $66bn (£50bn) takeover of controversial US seeds company Monsanto yesterday, marking the biggest deal of 2016 and the largest all-cash transaction on record.
The agreement was reached after months of negotiations, with GM-seeds producer Monsanto accepting Bayer’s fourth bid of $128 per share.
The mammoth tie up still faces hurdles, however.
“We expect significant anti-trust and political hurdles and assign 50 per cent probability of deal completion,” said Bernstein analyst Jeremy Redenius.
As part of the deal, Bayer has agreed to pay Monsanto $2bn if it collapses.
“The deal will face a number of hurdles, principally for US national security issues such as production close to military bases and from farmers who will see their choice of products limited further,” said Andrea Williams, a senior fund manager at Bayer shareholder Royal London Asset Management.
“With the agreed antitrust break fee of $2bn relatively small for a deal of this size, it suggests Bayer themselves are hedging some risk of the deal completing.”
Professor John Colley, of the Warwick Business School, added: “Apart from Monsanto's shareholders, who have hit the jackpot, this looks like a lose-lose bid. Bayer have been forced into paying too much and face major integration and competition authority risks.”
The proposed merger will likely face an intense and lengthy regulatory process in the US, Canada, Brazil, the EU and elsewhere. Monsanto's chief executive Hugh Grant said yesterday the companies will need to file in about 30 jurisdictions for the merger.
Bayer’s hand may have been forced by other deals in the sector, notably DuPont’s $130bn merger with Dow Chemical and ChemChina’s $43bn Syngenta acquisition. Companies are scrambling to maintain competitive advantage as the sector is hit by shifting weather patterns, intense competition in grain exports and a souring global farm economy.
“Bayer was clearly concerned at being left behind and was running out of options for merger targets precipitating the move for Monsanto,” Colley said.
If the deal closes, it will create a company commanding more than a quarter of the combined world market for seeds and pesticides in the farm supplies industry.
Bayer’s Monsanto acquisition is also the most expensive outbound German deal on Mergermarket’s records. It said German companies have displayed an “acquisitive streak” through 2016, with 68 non-European outbound deals worth $85bn announced.
14 September: Monsanto accepts $128 per share offer
Bayer chief executive Werner Baumann said:
We are pleased to announce the combination of our two great organisations. This represents a major step forward for our crop science business and reinforces Bayer’s leadership position as a global innovation driven life science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees and society at large.
Monsanto chairman and chief executive Hugh Grant said:
Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders at Monsanto. We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration.