Bayer explores $40bn bid for Monsanto

Bayer, the €79bn German chemicals and drugs company, is exploring a bid to buy US agribusiness Monsanto for more than $40bn in what would be the latest consolidation of the world’s providers of seeds and crop chemicals to farmers.

Bayer and its financial advisers have been studying for weeks how a combined company would be structured.

If a bid is launched for Monsanto, it would come nearly a year after the St. Louis-based company’s failed attempt to acquire another rival, Switzerland’s Syngenta.

People involved in the process said that while Bayer was weighing an offer for Monsanto, it was concerned such a big combination would face a number of obstacles, including from competition and regulatory authorities.

“Trying to do this merger is like going sailing in a tsunami,” said David Balto, a Washington attorney and former Justice Department lawyer who has worked on behalf of farmers in the past. “This is going to raise real significant concerns at the Justice Department,” he said.

A potential bid would come as the agribusiness industry has seen a rapid succession of large-scale mergers and acquisitions, including Dow Chemical and DuPont’s $130bn merger in December.

The rapid-fire round of dealmaking was triggered by Monsanto’s unsuccessful attempt to buy Syngenta, which collapsed in August. Hugh Grant, Monsanto’s Scotland-born chief executive since 2003, has argued the US company needs to move beyond its reliance on the GMO business and provide an even more integrated offering to farmers that includes key chemicals.

It was unclear whether Monsanto and Bayer had held formal talks in recent weeks. But in recent months, Monsanto has held informal talks with Bayer and BASF about industry consolidation but no agreement was ever made on how they could best join forces.

People following those talks said Monsanto had expressed an interest in forming a joint venture with the agrochemical businesses of either of the two German companies.

One idea floated was for Bayer to acquire Monsanto and later spin off the combined agribusiness into a publicly traded company, said two people following the situation closely.

Monsanto remains interested in exploring a potential combination with either BASF or Bayer, said a person close to the company’s management.

However, the person added that they would not do a transaction that would turn Monsanto into a division of a German company.

“Monsanto has no interest in being swallowed by German group, it wants to remain American,” the person said.

Bayer and Monsanto declined to comment.

A deal would allow Bayer to complement its crop sciences franchise with Monsanto’s biotechnology and seeds offerings, which include its chemical spray Roundup and its genetically modified Roundup Ready seeds.

Shares in Monsanto climbed 8.8 per cent to $98.40 just after midday in New York trading, giving the company’s equity a value of $42.5bn. Bayer fell 4.9 per cent to €95.15, declining on news of the potential bid, which was reported by Bloomberg.

Monsanto has made three attempts to buy Syngenta since 2011, which all failed and eventually drove the Swiss company to agree a $44bn sale to ChemChina, a hitherto little known Chinese group that has been striking large outbound acquisitions.

Coupled with the Dow-DuPont merger, the deals have left Monsanto exposed and led Bayer and its German rival BASF to look at various scenarios for their agribusiness units.

Nathan Fields, director of biotechnology and crop inputs at the US-based National Corn Growers Association, says farmers want robust competition in the marketplace, but “if you have organisations out there that are not innovating because of a lack of stability or economic viability, that does not bode well for offering growers choice”.

Bayer has only recently hired a new chief executive. Werner Baumann, a 28-year company veteran and former head of strategy, replaced Marijn Dekkers at the helm at the end of April. Mr Dekkers went on to succeed Michael Treschow as chairman of Unilever.

Under Mr Dekkers, who led the company for six years, Bayer transformed itself from a stodgy chemicals conglomerate into a more focused life sciences group.

Last year it listed its Covestro plastics division, in the biggest German flotation in years — though turbulent market conditions forced Bayer to cut the issue price. After the IPO Bayer was left with four businesses: pharmaceuticals, consumer healthcare, animal health and crop science.

The company, which has a 150-year pedigree, produces the best-selling Xarelto, a blood-thinning drug that generated revenues of €2.3bn last year. It also makes products ranging from pesticides and flea collars to cancer medicines and the company’s oldest brand — aspirin.

It remains deeply rooted in its home town of Leverkusen in the manufacturing region of North Rhine-Westphalia — a relationship epitomised in its ownership of the local Bundesliga football team, Bayer Leverkusen.