Year In Review 2016: 4 things to know about the $66 billion Monsanto-Bayer deal

Date:12-16-2016

Without a doubt, Bayer AG’s $66 billion acquisition of Monsanto Co. is the biggest news in the agtech industry this year. The two companies agreed to a deal in September, and if it closes, will rank as the largest-ever German takeover of a American company. Here are four things to know:

Three consecutive years of low global crop prices prompted massive structural changes to the industry through consolidation. Dow Chemical-DuPont and Syngenta AG-ChemChina announced their plans to merge in late 2015 and early 2016, respectively, causing the last three remaining big companies — Monsanto, Bayer and BASF — to make a deal or face a loss of market share.

“Consolidation is the way this industry is evolving,” Stifel Nicolaus analyst and Vice President Paul Massoud told the Business Journal earlier this year.

“Right now, they are facing big questions on future direction. The need to do something very big is very clear,” Radha Gopalan, associate professor of finance at Washington University’s Olin School of Business at Washington University, said then. “Whether a merger makes sense or not, at the end of the day, shareholders work with their wallet.”

Monsanto CEO Hugh Grant also was coming off a challenging 2015 in which his pursuit to acquire Syngenta failed and the Swiss competitor agreed to a $43 billion all-cash takeover by ChemChina. Monsanto had offered $47 billion in cash and stock to Syngenta.

2. Regulation hurdles

The companies face intense scrutiny with regulatory bodies around the world and Grant has said they will need to file in 30 jurisdictions. After Monsanto shareholders approved the merger, the company said Bayer had submitted a number of regulatory filings.

But recent rejections of high-profile mergers, including Staples-Office Depot, Sysco-US Foods, and Baker Hughes-Halliburton by the U.S. Department of Justice and the Federal Trade Commission imply a rigorous and difficult environment for mega mergers.

“The DOJ has been very vigilant on mergers,” said Tim Greaney, who spent almost 10 years in the DOJ’s Antitrust Division and is now a professor at the Saint Louis University School of Law. “It’s not as if we’re in a time where antitrust enforcement has been lax.”

Outside of the U.S., the European Union has suggested it would “closely scrutinize” the merger, according to The Wall Street Journal. Monsanto does not have a good reputation abroad, especially in Europe and with some of Bayer shareholders who have expressed their disappointment. The company responded by stating it doesn’t need their approval for the deal.

If regulators do not approve the merger, Bayer is required to give Monsanto a $2 billion termination fee, according to the merger agreement.

3. The number of job cuts is unknown

Monsanto employs about 4,100 across its two campuses in Creve Coeur and Chesterfield and more than 20,000 around the world. About 16,000 work for Bayer in North America, including 700 in the state of Missouri, and 115,000 worldwide. Neither company, however, has said what impact the deal will have on jobs. Bayer has said that the merger will create annual synergies of about $1.5 billion.

Liam Condon, president of crop science for Bayer and a member of its board of management, told reporters the day after the merger was announced that no personnel decisions had been made and that the company will take the next 12 to 15 months before the deal closes to make those decisions.

“On the research side, it’s probably a good assumption” that research jobs will be spared, Condon said then. “On the administrative side, it is too early to call.”

In November, Missouri Gov. Jay Nixon traveled to Germany to meet with Baumann and other executives about keeping local jobs. Nixon in a statement said Bayer reconfirmed its commitment to St. Louis and will keep it as the company’s global Seeds & Traits division and North American commercial headquarters.

4. What this means for St. Louis’ place on the global stage

“St. Louis is a unique place for agriculture research,” Grant said at an October unveiling of the company’s new greenhouses. “Combine the horsepower (of Monsanto and Bayer) and the greenhouses are going to be really big business. This site is key to the future.”

In addition, Bayer said that Monsanto’s $1 billion-plus investment in digital ag, including its $930 million purchase of Climate Corp., was persuasive in keeping the German company at the table during negotiation. It suggests that while St. Louis will lose the prestige of having a global company’s headquarters here, it will grow its stature in the agtech and plant science industries.

That’s what St. Louis County is investing in. Earlier this month it unveiled 39 North— the region’s plant science innovation district that will be based in Creve Coeur and have the Donald Danforth Plant Science Center and Monsanto as anchors. 39 North will border Bauer Boulevard to the north, Monsanto’s campus to the south, Warson Road to the east and Old Olive Street Road to the west. A mixed-use component consisting of retail, residential and office space also is planned.

So far, the county has received close to a $1 million in grants related to the innovation hub.

“39 North will attract people and businesses from around the world,” Sheila Sweeney, CEO of the St. Louis Economic Development Partnership, said in a statement. “The discoveries made at 39 North will improve the human condition and we are excited about the possibilities for the district, including tying it in to other agricultural efforts across the state.”