Mega Merger: Bayer-Monsanto pairing would affect millions

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FRANKFURT, GERMANY >> Bayer wants to buy Monsanto for $62 billion, hooking up the German chemical and drug company with the St. Louis-based producer of seeds and weed-killers.

The deal would create a global giant in agriculture technology touching much of global food production through the development of seeds and pesticides.

Here's a look at the deal and what it would mean for farmers, workers, consumers and investors.

• Bayer is offering to acquire Monsanto, which makes seeds for fruits, vegetables, corn, soybeans and cotton, as well as weed-killer Roundup. It has more than 21,000 employees worldwide, about half of whom work the U.S. in 33 states.

Bayer, headquartered in Leverkusen, Germany, employs some 117,000 people worldwide. It makes pharmaceuticals, over the counter medicines such as Aleve and Alka-Seltzer, and farm chemicals.

Bayer said Monday the all-cash offer values shares of Monsanto at $122 each. That compares with a closing price Friday of $101.52 and is 37 percent higher than the closing price of $89.03 on May 9, the day before Bayer made a written proposal to Monsanto.

Why Bayer's interested

• The takeover would create the world's largest seed and farm chemical company with a strong presence spread across the U.S., Europe and Asia.

Bayer says that combining research and development as well as product lines would make the two companies worth more together than separately. The combined company would have higher earnings and save $1.5 billion a year by eliminating overlapping functions and overhead.

They would combine different regional strengths: Monsanto is big in the United States, while Bayer has a larger presence in Europe and Asia.

Bayer says the world needs more productive agriculture to meet the food needs of a growing world population. Monsanto says it's considering the offer.

So why are investors skeptical? Bayer shares slumped 5.7 percent Monday, off 12.5 since Bayer confirmed it was in talks with Monsanto.

• One reason: Part of the deal will be paid for by issuing new shares. Shareholders either pay to sign up or see their share of earnings shrink through dilution of their holdings.

Another reason: Some investors may have bought Bayer due to its primary focus on pharmaceuticals and might not be so interested in getting a stake in a seed company.

The problem

A more complex company with a wider range of business operations can trade at lower prices than a more focused one. "What we find is that larger firms and more diversified firms are valued less than a single highly specialized firm," says Michael H. Grote, professor of finance at Frankfurt School of Finance & Management and an expert on mergers and acquisitions.


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