Monsanto Co is reviewing an unsolicited takeover proposal from Bayer AG, a bold attempt by the German company to snatch the last independent global seeds producer and become the world's biggest maker of seeds and farm chemicals.
The St. Louis-based company, with a market value of $42 billion, is consulting financial and legal advisers and didn't disclose the terms of the proposal in a statement Thursday. Bayer, confirming the offer, said the combination would bolster its position as a "global innovation-driven life science company." Bloomberg News was first to report a week ago that Bayer was exploring a potential bid.
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Shares of Bayer dropped amid concern that a large purchase would weigh on its credit rating and force the company to sell more stock. The proposal by Werner Baumann, who has been at Bayer's helm for less than a month, follows Monsanto's failed attempt to buy Syngenta and the proposed merger of Dow Chemical Co and DuPont Co Baumann may need to sell some assets, such as his company's remaining stake in Covestro AG or Bayer's animal health unit, to help fund its quest to buy the world's largest seed maker.
Bayer's stock fell 6.3 per cent, the most in almost nine months, to 90.17 euros as of 9:23 am in Frankfurt trading.
Merging Monsanto with the company that invented aspirin would bring together brands such as Roundup, Monsanto's blockbuster herbicide, and Sivanto, a new Bayer insecticide.
A wave of deals is already reshaping the seed and crop-chemicals industry. Chinese National Chemical Corp. agreed in February to acquire Switzerland's Syngenta AG for about $43 billion, months after Monsanto abandoned its own bid for Syngenta. DuPont and Dow plan to merge in a $65.6 billion deal and then carve out a new crop-science unit.
A completed acquisition would extend a record-setting pace of consolidation in the global chemicals sector, which has seen $84 billion of deals this year as low crop prices encourage mergers, according to data compiled by Bloomberg. With a premium, a takeover of Monsanto could surpass ChemChina's purchase of Syngenta as the largest acquisition globally this year, the data show.
Monsanto shares closed at $97.13 in New York trading on May 18. Bayer shares dropped 3.35 per cent to 93 euros at 8:17 am in Frankfurt.
"Despite the ongoing consolidation in the agrochemicals market, we believe there is no need for Bayer to rush into a deal with Monsanto," Bankhaus Lampe KG analyst Volker Braun said in a research note. "We see enough opportunities arising from pending M&A transactions in the industry to buy assets at better prices and more favourable risk profiles."
Monsanto is facing a slump in agricultural commodities and its offer to buy Syngenta for about $46.2 billion was spurned last year. Sales in the quarter ending in February fell 13 per cent from a year earlier to $4.53 billion. Prices for corn and soybeans declined in the last three calendar years, hurting demand for everything from tractors to weed killer. A deal with Bayer would help the company reduce its reliance on the agriculture industry, while Monsanto would strengthen Bayer's seed business, one of the company's priorities.
Morgan Stanley & Co and Ducera Partners are Monsanto's financial advisers, and Wachtell, Lipton, Rosen & Katz is its legal adviser. Bayer in an e-mailed statement confirmed that it had recently met with Monsanto executives to "privately discuss a negotiated acquisition" of the seed maker.
Bloomberg News reported earlier this month that Bayer had been exploring a potential bid for Monsanto in a deal that would create the world's largest supplier of seeds and farm chemicals, citing people familiar with the matter.
Monsanto was founded in 1901, its first product the artificial sweetener saccharin. It introduced one of its first genetically modified seeds in 1996, Roundup Ready soybean, spawning heated controversy with critics of biotechnology. Bayer's products range from blood thinner Xarelto to consumer products and pest-control treatments for farmers.
Bayer is transitioning to new leadership. Strategy head Werner Baumann took over from Chief Executive Officer Marijn Dekkers this month. Dekkers reshaped Bayer, increasing its focus on life sciences by buying Merck & Co's over-the-counter medicines business and divesting a stake in its plastics unit.
