German chemical company Bayer (who have a terrible history, as we all know) are going to fork over a cool $66 billion in cash to buy one of the most evil corporations in America, Monsanto. The all-cash deal, the largest takeover ever by a German company and largest all-cash deal on record, will create a firm that has control over more than a quarter of the world’s seeds and pesticides. 

(Let that fact sink in.)

Monsanto, infamous for GMOs and for being the world’s largest seller of seeds and Bayer, best known for its aspirin (although they also have a major pesticide division, as well as biotechnology, plastics, and health segments) have been in talks since early May (Bayer’s initial offer was $4 billion less than the deal they agreed on today).

Well, today’s deal- if it goes through- could be a total horror story; Bayer’s acquisition could lead to higher prices for farmers and be troublesome given that Europe is FAMOUSLY anti-GMO.

The proposed merger will surely face an intense and lengthy regulatory process in the US, Canada, Brazil, the European Union and elsewhere. In fact, to merge the companies will need to file in about 30 jurisdictions.

From the article:

“Competition authorities are likely to scrutinize the tie-up closely, and some of Bayer’s own shareholders have been highly critical of a takeover that they say risks overpaying and neglecting the company’s pharmaceutical business.

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 fast-consolidating farm supplies industry.”

But, should the deal not go through (because they don’t get regulatory clearance), the contract includes a $2-billion “break-up fee” that Bayer will pay to Monsanto- although Bayer expects to close by the end of 2017.

There’s just SO MUCH money involved in this deal, Reuters breaks it down for us:

  1. Research analyst Jacob Thrane said the German company was paying 16.1 times Monsanto’s forecast core earnings for 2017, more than the 15.5 times ChemChina agreed to pay for Swiss crop chemicals firm Syngenta last year.
  2. It plans to raise $19 billion to help fund the deal by issuing convertible bonds and new shares to its existing shareholders and said banks had also committed to providing $57 billion of bridge financing.
  3. Bayer shares were up 2.2 percent at 95.32 euros. Monsanto’s were up 0.8 percent at $106.89.
  4. Bayer said BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan had committed to providing the bridge financing with BofA Merrill Lynch and Credit Suisse acting as lead financial advisers and Rothschild as an additional adviser (WHOA).

Insane. But not the first. While the German company is aiming to be a “one-stop shop” for seeds, crop chemicals, and computer-aided services to farmers, there have been other very recent agrochemical deals.

  • Syngenta agreed to a takeover by China’s state-owned ChemChina.
  • U.S. chemicals giants Dow Chemical and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.
  • Canadian fertilizer producers Potash Corp of Saskatchewan Inc and Agrium Inc agreed to combine to navigate a severe industry slump, but the new company’s potential pricing power may attract tough regulatory scrutiny.

Again, this deal is “done” but not totally. There is still a lot of regulatory stuff that has to be done. We can hope this won’t go through but it seems inevitable.

 

Source: Reuters