As the global agricultural sector races to consolidate, Bayer AG’s $66 billion all-cash deal to acquire Monsanto will test growing political and consumer unease in the United States and abroad over the future of food production.
Bayer’s pesticide-focused agricultural business has few overlaps with Monsanto’s dominant seed franchise, according to the companies’ executives. Still, marrying two of the world’s top farm suppliers, at a time when rivals also are merging, is fueling concern over fewer players competing in the $100 billion global market.
Monsanto and Bayer “have chosen to do a deal in the year of merging dangerously,” said David Balto, a former policy director at the U.S. Federal Trade Commission. “They are in for a tough time.”
Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, has called a hearing next Tuesday to scrutinize the wave of consolidation. Grassley, in a news release Wednesday, said Iowa farmers are worried that seed and chemical costs are rising while a global glut of grain has pushed prices close to their lowest levels in years. Farm incomes have plunged.
Monsanto agreed to sell itself to Bayer for $128 per share in cash, yet its shares were hovering around $107 on Wednesday, reflecting the significant regulatory uncertainty surrounding the deal in the minds of investors. Bayer has agreed to pay Monsanto a $2 billion breakup fee if regulators thwart the deal.
The German company aims to create a one-stop shop for seeds, crop chemicals and computer-aided services to farmers.
That was also the idea behind Monsanto’s swoop on Syngenta AG last year. The Swiss company fended off that offer only to agree later to a takeover by China’s state-owned ChemChina.
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U.S. chemicals giants Dow Chemical Co and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.
If all of the deals close, three companies would control nearly 70 percent of the world’s pesticide market and 80 percent of the U.S. corn-seed market.
Wednesday’s announced tie-up between Monsanto and Bayer, the largest-ever all-cash acquisition, will inevitably face an intense and lengthy regulatory process in the United States, the European Union and elsewhere, regulatory experts said.
“This merger is not a slam dunk,” said Diana Moss, president of the American Antitrust Institute.
Hugh Grant, Monsanto’s chief executive, told reporters on Wednesday the companies will need to file in about 30 jurisdictions for the merger.
The value of the assets that Bayer is willing to divest is to be revealed by next week, when details of the merger agreement with Monsanto become public, according to sources familiar with the deal.