After months of negotiation, German healthcare giant Bayer has finally won over Monsanto MON +0.87% by striking a $128 a share takeover of the St. Louis-based agriculture giant that values the company at $66 billion when including debt. The deal, agreed after months of back and forth negotiations, will dramatically expand Bayer in the U.S. and increase its presence in agricultural seeds, where Monsanto is an industry leader.
The merger is being presented as a way to scale Bayer’s operations in seeds, crop protection an other agricultural specializations as demand for vegetables and grains surges in the coming decades.
Bayer, a life sciences powerhouse with products like Aspirin, Alka-Seltzer, Claritin, Copportone Sunscreen and Xarelto, has a formidable presence in crop protection where its herbicide and pest control products are used by farmers around the world. Monsanto’s seeds products span crops like alfalfa, canola, corn, cotton, sorghum, soybeans, sugarbeets and wheat. The cross-border corporate merger comes as Bayer and Monsanto expect the world population to grow by 3 billion people by 2050, creating an increased need for improved crop yields and sustainability.
(See Forbes’ 2009 Cover Story: The Planet Versus Monsanto)
“This challenge requires a new approach that more systematically integrates expertise across Seeds, Traits and Crop Protection including Biologicals with a deep commitment to innovation and sustainable agriculture practices,” Bayer said on Tuesday morning. The combined company will benefit from Monsanto’s leadership in seeds and its recent acquisition of the Climate Corporation, while Bayer’s global crop protection presence may open up new markets for growth.
“Together Monsanto and Bayer will build on our proud tradition and respective track records of innovation in the agriculture industry, delivering a more comprehensive and broader set of solutions to growers,” Hugh Grant, CEO of Monsanto, said in a statement. The combined business is expected to give farming customers with new solutions, including agronomic insight supported by Monsanto’s digital farming applications, which can bolster yields, efficiency and environmental sustainability.
Bayer’s merged agriculture business will have a seeds headquarters in St. Louis, crop protection headquarters in Monheim, Germany, and will maintain a major presence in Durham, North Carolina. Meanwhile, digital businesses like the Climate Corporation will remain headquartered in San Francisco.
Merger negotiations first surfaced in May when Bayer made anunsolicited overture to buy Monsanto. At the time, Monsanto was just recovering from its failed $46.5 billion takeover effort for European seeds giant Syngenta , and in the process of completing a $3 billion stock buyback that reduced its share count by over 10%. That buyback and post-deal strategy is now paying off with Bayer’s takeover offer. Bayer’s $128 a share bid values Monsanto at a 44% premium to its unaffeccted price in early 2016 before deal talks surfaced. Because Tuesday’s merger carries significant antitrust and regulatory risks, Monsanto’s shares remain well below Bayer’s offer price.
The combined company will have pro forma agriculture sales of EUR 23 billion and the ability to generate $1.5 billion in cost synergies within three years of the deal’s close. Bayer expects the merger to bolster its core earnings per share within a year and to create double-digit accretion by year three. The tie-up is expected to close by the end of 2017, underscoring the complexity of antitrust approvals. Furthermore, Bayer has agreed to pay a $2 billion reverse termination fee if regulators or shareholders block its merger bid.
The German conglomerate will finance its Monsanto buy with a mix of new debt and equity. It expects to raise roughly $19 billion in through a convertible bond issue and has raised $57 billion in bridge financing from a consortium of banks including BofA Merrill Lych, Credit Suisse, Goldman Sachs, HSBC and JPMorgan.
“We are pleased to announce the combination of our two great organizations. This represents a major step forward for our CropScience business and reinforces Bayer’s leadership position as a global innovation driven Life Science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees and society at large,” Werner Baumann, CEO of Bayer, said in a statement.
“Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders at Monsanto. We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration,” added Monsanto CEO Grant.
BofA Merrill Lynch and Credit Suisse are acting as lead financial advisors and structuring banks to Bayer, while Rothschild acted as an additional financial advisor. Bayer’s legal advisors included Sullivan & Cromwell and Allen & Overy. Morgan Stanley MS +0.48% and boutique firm Ducera Partners acted as financial advisors to Monsanto, while and Wachtell, Lipton, Rosen & Katz was its legal advisor.
via : forbes