Monsanto Agrees to $66-Billion Takeover Bid from Bayer

Monsanto has accepted an increased takeover bid of $128/share from Bayer, paving the way for Bayer to acquire Monsanto in an all-cash transaction valued at $66 billion. The price is a slight increase from Bayer's latest bid of $127.50/share that was announced on September 6th, but short of the $130/share that analysts believed Monsanto was seeking. It represents a 44% premium to Monsanto's closing share price on May 9, 2016, the day before Bayer made its initial approach to Monsanto.

The deal will create a global leader in agriculture with combined sales of about €23.0 billion/year ($25.8 billion) based on 2015 figures, combining Bayer's strengths in agricultural chemicals with Monsanto's strengths in seeds and traits. The Bayer CropScience subgroup had sales of €10.4 billion and Monsanto had revenue of $15.0 billion in 2015. Bayer's overall group sales in 2015 were €46.3 billion.

The deal, reportedly the largest overseas acquisition by a German company, is expected to close by the end of 2017 subject to customary closing conditions including approval from Monsanto shareholders and regulatory approvals.

In a media conference call, executives said they would seek approval from 30 regulatory agencies globally, including major ag markets in United States, Canada, Brazil, and China. Executives from both companies declined to speculate on where problems may arise during the antitrust reviews, adding that overlap was minimal.

Bayer has committed to a $2-billion reverse antitrust breakup fee, up from a proposed $1.5-billion breakup fee that Bayer announced on July 19 when it increased its bid for Monsanto to $125/share from the $122/share it offered on May 10.

Bayer and Monsanto expect the deal to create synergies leading to annualized Ebitda contributions of about $1.5 billion, of which cost synergies account for $1.2 billion, starting after year-three following the transaction's close, plus additional synergies from ongoing integration. The estimate is based on Bayer's due diligence after Monsanto granted access to its books.

The combined business's worldwide seeds and traits and North American commercial headquarters will be located at Monsanto's St. Louis, Missouri, headquarters. Its crop protection and overall crop science headquarters will be at Bayer CropScience's Monheim, Germany, base. It will also have a major presence at Durham, North Carolina, and the merged digital farming activities will be based at San Francisco, California. The combined entity will have an annual pro-forma R&D budget of about €2.5 billion.

Bayer intends to finance the deal through a combination of debt and equity. The equity component of about $19 billion is expected to be raised through an issuance of mandatory convertible bonds and through a share issue with subscription rights.

Bayer-Monsanto is one of a number of multibillion-dollar M&A deals being discussed in the worldwide ag sector. They include ChemChina's impending acquisition of Syngenta, and the respective mergers of Dow Chemical with DuPont, and PotashCorp with Agrium.

Keywords: Agriculture, Seeds and Traits, Ag Markets, Crop Science, ARC Advisory Group.