Bayer’s $66bn Monsanto acquisition to face politically charged scrutiny

November 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The $66bn mega merger between German chemicals powerhouse Bayer AG and Monsanto Co, which would create the world’s biggest seeds and pesticides company, is coming under increasing political and antitrust pressure which could torpedo the deal.

Amid a renewed wave of consolidation across the agriculture space, critics in both the US and abroad have rounded on the transaction. Bernie Sanders, the Vermont senator who ran against Hillary Clinton for the Democratic presidential nomination, said “The attempted takeover of Monsanto by Bayer is a threat to all Americans”. He added: “These mergers boost the profits of huge corporations and leave Americans paying even higher prices. Not only should this merger be blocked, but the Department of Justice should reopen its investigation of Monsanto’s monopoly over the seed and chemical market.”

Mr Sanders is not alone in his criticism. A number of politicians, scientists, regulators, farmers and activists have spoken out against the deal. Most notably, Friends of the Earth termed the deal a “marriage made in hell” given that the potential deal could lead to a reduction in seed variety, an increase in genetically modified crops, higher seed costs and therefore higher crop and food prices.

Environmental issues aside, the timing of the Bayer-Monsanto tie up is also driving the high level of consternation permeating both the agriculture sector and the halls of various global antitrust organisations. According to David Balto, a former policy director at the US Federal Trade Commission, the companies “have chosen to do a deal in the year of merging dangerously… they are in for a tough time”. Bayer’s planned tie-up with Monsanto comes as rivals Dow Chemical Co and DuPont Co are in the midst of pursuing a merger. Furthermore, earlier this year Swiss pesticide group Syngenta AG agreed to be acquired by China National Chemical Corp for $43bn.

The aftermath of the deal announcement, made in mid September, has seen regulatory concern reflected in Monsanto’s share price. Though Monsanto agreed to sell itself to Bayer for $128 per share in cash, the company’s shares hovered around $107 in the days after the announcement. Should the deal collapse, Bayer has agreed to pay Monsanto a $2bn breakup fee.

In the event that the deal – the biggest proposed merger of the year so far – does win antitrust approval, the tie up between two of the world’s biggest agricultural giants would allow the companies the opportunity to pool their resources and increase research and development and investment in technology. Improvements in R&D and tech development would enable the combined company to bring new seed and crop products to market quickly. Furthermore, the proposed combination of Bayer and Monsanto would create a seed and crop-chemical heavyweight with about $26bn in annual sales.

However, the overwhelmingly strong position that a newly merged Bayer-Monsanto would hold in the food and agriculture space may be enough to scupper the deal on both sides of the Atlantic, amid fears that the dramatically reduced level of competition would likely lead to considerable and painful price hikes for consumers. Senators Mike Lee and Amy Klobuchar, two of the US’ leading antitrust lawmakers, have also expressed concern at the potential deal. “The transaction has the potential to result in a significant loss of competition and reduced incentives and ability to innovate, thereby raising prices,” said Mr Lee.

In the US, the Justice Department, which shares antitrust enforcement with the Federal Trade Commission, will probably review the merger given that it has previously scrutinised other Monsanto deals. Indeed, the department plans to file with the Committee on Foreign Investment in the US, which reviews foreign acquisitions of US businesses.

Both Monsanto and Bayer are no strangers to controversy and public disapproval. While Monsanto has faced fierce criticism in the past over its practice of genetically engineering seeds, Bayer has also drawn public ire for manufacturing an insecticide that studies show harms bees, and which was subsequently banned by the European Union in 2013.

Richard Summerfield