Bayer offers to buy Monsanto in global agro-chemicals shakeout

New York/Frankfurt: German drugs and chemicals group Bayer made an unsolicited takeover offer for US seeds company Monsanto, aiming to create the world's biggest agricultural supplier and integrate pesticides and seeds markets.
Monsanto disclosed the approach on Wednesday before Bayer confirmed its move, though neither gave the proposed terms. Sources said Bayer would pay Monsanto shareholders with cash and stock, though the offer price could not be learned.
Bernstein Research analyst Jeremy Redenius estimated the price at 41.9 billion euros ($47 billion), plus 6.7 billion euros in assumed debt. He said Bayer might need a 27 billion euro share issue to help to fund the purchase.
Bayer would probably need to pay 14-16 times Monsanto's core earnings, implying a takeover price including debt of 57 billion euros ($63.87 billion) to 65 billion euros ($72.83 billion), according to Citi analysts.
Bayer shares slid 8 percent to a 2-1/2 year low of 88.39 euros as some investors worried about the potential cost.
Monsanto was up 4.7 per cent at $101.77 in afternoon trading in New York.
The $42 billion market capitalisation of Monsanto meant the deal would likely eclipse ChemChina's planned acquisition of Swiss agrichemicals company Syngenta and could face US antitrust hurdles. Monsanto itself pursued Syngenta last year.
Monsanto said its board was reviewing the proposal, which would be subject to due diligence, regulatory approvals and other conditions. There was no assurance that any transaction would take place, it added.
UBS Global Asset Management, which Reuters data showed is among Bayer's 30 biggest investors, said it was "deeply concerned" about the burden on Bayer's finances from a takeover. It preferred that the companies agree on a joint venture or use prices before the deal was announced.
Deutsche Bank analysts said a deal could shift Bayer's centre of gravity to agriculture, accounting for about 55 per cent of core earnings, up from roughly 28 per cent last year, excluding the Covestro chemicals business Bayer plans to sell.
Bayer's healthcare-focused investor base would be unhappy about the shift, the bank said.
Price estimates
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.
Most major agrichemical companies are aiming to genetically engineer more robust plants and custom-build chemicals to go with them — selling them together to farmers struggling with low commodity prices.
A sale of Bayer's stake in foam chemicals maker Covestro could bring about four billion euros, while its animal health business, which Bayer might put on the block, could fetch up to seven billion euros.
The proposal comes as US regulators review ChemChina's deal for Syngenta on concerns about the security of the US food supply.
Any marriage between Bayer and Monsanto could raise US antitrust concerns due to an overlap in the seeds business, particularly in soybeans, cotton and canola, according to antitrust experts.
Bayer's proposal, which would be its largest and dwarf the 17 billion euro takeover of drugmaker Schering in 2006, comes less than three weeks after Werner Baumann took over as Bayer chief executive officer, a sign of the power base he built in his previous role as strategy chief.
Bayer, the inventor of aspirin and maker of Yasmin birth control pills, is more diversified than Syngenta or Monsanto, selling cancer drugs, flea and tick collars for pets and Coppertone sunscreen. A deal with Monsanto could lead to a breakup of the group, according to analysts.
Bayer's crop science division has businesses in seeds, crop protection and non-agricultural pest control, potentially complementing Monsanto's seeds assets.
Bayer, Basf ambitions
Both Bayer and German rival BASF have been looking to build scale in agrichemicals.
Bayer is ranked No. 2 in crop chemicals, with an 18 percent market share, just behind Syngenta at 19 per cent, according to industry data.
Monsanto leads in seeds, with a 26 per cent market share, followed by DuPont with 21 per cent. DuPont agreed last year to merge with Dow Chemical. Any Bayer-Monsanto deal would reduce the number of major players in seeds and pesticides to four from six.
Morgan Stanley and Ducera Partners are financial advisers to Monsanto, while Wachtell, Lipton, Rosen & Katz is legal adviser.