Kimberly Hatfield Freelance Writer GEN
Investor Backlash and Antitrust Issues Are just a Few of the Issues Plaguing the Bayer Bid for Monsanto
The Bayer bid for Monsanto may be just a survival instinct in the dog eat dog world of agrochemical consolidation. But a closer look at the deal, rejected by Monsanto officials who added that they have not closed the door on additional discussions, reveals what’s at stake: big money, shifting alliances, and the scrutiny of investors and consumers.
By every measure, the Bayer bid for Monsanto is big. The $62 billion cash takeover offer exceeds its own high-water mark by being both the largest deal in the agrochemical space and the largest deal globally so far this year1. It dwarfs the second largest deal, also in the same space, the ChemChina acquisition of Syngenta valued at $43 billion.
Everything about the food and agriculture business is supersized. The social, environmental and economic impact of this industry is estimated at a massive $5 trillion by the consulting group McKinsey2. The numbers may be huge, but so are the stakes. The global population is estimated to reach about 8.9 billion3 by 2050 according to the UN. That could translate into a 70% increase in caloric demand says McKinsey.
The challenge of feeding so many people is daunting. Competing interests in energy and food production, changing and emerging consumer preferences, price volatility, and multiple environmental factors are just a few of the pressures on the global food and agriculture industry.
Monsanto is no stranger to these forces. For the past several months it has reported declining profits amid weak agricultural commodity prices among other challenges and has expressed interest in combining forces with other agrochemical giants.
Like the pollen in many of its crops, Monsanto has hitched a ride on shifting winds. It targeted Syngenta in an effort to shore up leadership positions in both seed production and crop protection.
During failing talks with Syngenta, Monsanto president and COO Brett D. Begemann4 hedged his bets, according to a June 2015 Bloomberg story: “There are other options to pursue from a chemical standpoint, and we will go after those,” Begemann said. “I don’t know what Bayer is going to do with their crop-protection business, whether they’ll sell it or not, but I’m sure they’d be happy to talk about some other kind of marketing arrangement.”
Months later in March 2016, Reuter5 reported that the two companies engaged in talks around Monsanto targeting Bayer’s crop science unit valued at more than $30 billion. Apparently neither of these options—a marketing arrangement or divesting a piece of its business—was what Bayer had in mind.
The Bayer bid may not be what Monsanto had in mind either. On Tuesday, May 24, Monsanto6,7 announced that its board of directors “unanimously views the Bayer proposal as incomplete and financially inadequate.” Though both sides have continued to engage in talks.
Investor backlash and antitrust issues are just a few of the issues plaguing this deal.
Bayer’s stock dropped about 6% on news of the offer. And the Financial Times is reporting that the research group Bernstein says that investors are “very critical” of this deal8.
Meanwhile Monsanto shares are on the rise following the $122-per-share offer and speculation that Bayer will sweeten the deal.
Bayer is showing no signs of losing its appetite. In a statement put out by the company, Werner Baumann, CEO of Bayer, said, “We are confident that we can address any potential financing or regulatory matters related to the transaction.” And Bloomberg9 is reporting that Bayer is selecting banks to help them finance the deal.
This is making investors like Markus Manns, a fund manager at Union Investment, Bayer's 14th biggest investor, uncomfortable according to reports. Manns told Reuters10, “The price that has now been disclosed is at the upper limit and it is just about economical. Should it rise further, which is to be assumed, the takeover will become increasingly unattractive.”
Another sign of discomfort is with environmental groups like the German-based BUND. This deal is about the further concentration of market power, said Heike Moldenhauer, an expert on biotechnology for BUND11.
“This oligopoly is going to dominate our future way of farming and food production. It will dictate products and prices and limit the freedom of choice for farmers and consumers. And because the business model of all these companies is based on GMOs, pesticides and uniform worldwide selling of products, we will have a dramatic loss of biodiversity, too—not only the biodiversity of seeds will decrease, but the biodiversity of plants and animals in the agricultural landscape as well,” Moldenhauer added.
Bayer’s bid for Monsanto in particular is a bitter pill for environmental groups. “In the EU, for the general public, Monsanto is the incarnation of evil. And to swallow a company with such a tradition of highly aggressive lobbying and ruthless business behavior could become a clash of cultures. Not that Bayer is that innocent, but the Monsanto way of business is unacceptable for Europeans with their strong civil society. And business always depends on public acceptance,” Moldenhauer said.
Despite appetite for consolidation in the agrochemical space, this union may prove unpalatable.
Kimberly Hatfield is a freelance writer for GEN.