IN an acceleration of a trend towards mega-mergers in the agribusiness area, German pharma and agrochemicals major Bayer has announced an all-cash $66 billion deal to take over American seed major Monsanto. To clinch the deal, Bayer raised its initial bid thrice from $122 to $128 a share, to touch a level that implies a 44 per cent premium over Monsanto’s early-May stock market price.
On the surface, the deal seems to bring together firms with activities that complement each other. Monsanto is a controversial seed company producing genetically modified seeds for different crops, while Bayer is focussed on agricultural chemicals. As a result, the takeover, if cleared, would create the world’s largest supplier of seeds and agricultural chemicals since Monsanto accounted for 26 per cent of the global seed market in 2013 and Bayer for 18 per cent of the pesticides market.
Sixty per cent of Monsanto’s revenues come from the United States, whereas Bayer has a substantial European and Asian presence. But Monsanto has an important presence in India, for example. So the merger creates a company that can service farmers across the globe in multiple ways. It would also give the company an oligopolistic position in some markets. If the combination passes regulatory scrutiny, the new entity will be responsible for 70 per cent of the area on which cottonseed is sown in the U.S., a major GM seed user. This may partly account for Bayer’s eagerness to swallow up Monsanto.
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