BASF to buy Bayer assets for $7bn

December 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

December 2017 Issue

German chemical giant BASF has agreed to buy parts of Bayer’s seed and herbicide business in an $8.8bn, all-cash deal.

BASF will acquire a number of Bayer’s units, including the company’s Liberty, Basta and Finale non-selective herbicides, and the seed business for crops such as InVigor canola hybrids using the LibertyLink trait in North America, cotton in the Americas and Europe and soya beans in the Americas.

The unit sale is part of Bayer’s plan to assuage the concerns of the EU’s competition authority over its planned $66bn acquisition of US agrochemical and agricultural biotechnology corporation Monsanto Company. Bayer had previously offered to sell assets worth around $2.5bn to complete the deal; however the European Commission said that the divestments offered by Bayer did not go far enough and so launched an in-depth investigation of the deal in August.

In 2016, sales of the assets to be purchased from Bayer amounted to around $1.5bn and generated earnings before interest, taxes, depreciation and amortisation (EBITDA) of around $455m. The transaction is subject to the closing of Bayer’s acquisition of Monsanto and approval by relevant authorities. It is expected to close in the first quarter of 2018, though European regulators are not expected to conclude their review of the Monsanto-Bayer transaction before January.

“We are taking into account the potential concerns of the regulating authorities to make a successful completion of the Monsanto transaction possible,” said Werner Baumann, chief executive of Bayer. “We are also glad that we have found a serious buyer in BASF, who continue to think about the needs of farmers and offer our employees good prospects for the future.”

BASF is paying 15 times EBITDA for the Bayer assets, and the company has said the deal will be earnings per share accretive in the first year. BASF will gain 1800 additional employees, the relevant intellectual property and a number of facilities as part of the deal.

“With this acquisition, we are seizing the opportunity to purchase highly attractive assets in key row crops and markets. We look forward to growing these innovative and profitable businesses and to welcoming the experienced and dedicated team in crop protection, seeds and traits. These businesses are an excellent match for BASF Group’s portfolio,” said Dr Kurt Bock, chairman of the board of executive directors of BASF SE, in a statement. Dr Bock told a conference call concerning the deal that he would look at further acquisition opportunities in the seeds sector moving forward, but it would take “two to tango”.

“I am very pleased that, in BASF, Bayer has selected an acquirer that, like our company, attaches a great deal of importance to social partnership and values its employees. I welcome the fact that BASF has committed to offering comparable employment conditions for our colleagues,” said Oliver Zühlke, chairman of the Bayer Central Works Council.

Saori Dubourg, the BASF board member responsible for its agricultural solutions segment, said acquiring the Bayer businesses created opportunities for future growth and innovation potential. “Building on the competent new team members and the enhanced portfolio, we will offer farmers a greater choice of solutions addressing their needs for high-quality seeds, chemical and biological crop protection,” Ms Dubourg said.

Consolidation in the agrochemical industry is becoming increasingly common, and has attracted considerable regulatory scrutiny. In addition to the Bayer-Monsanto deal, the European Commission has launched similar investigations into Dow Chemical’s $130bn merger with DuPont and ChemChina’s $44bn takeover of Switzerland’s Syngenta. These mega deals will have serious consequences for the global herbicide business, reducing the industry from six major companies to four. However, by acquiring Bayer’s assets BASF, which has previously shied away from big ticket M&A deals in the agrochemical space, will firmly establish itself as a major force in the industry.

Richard Summerfield