Bayer – Monsanto: A $56bn Cash Pile Waiting for Regulatory Sign-Off

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On September 14, following months of negotiations, Bayer and Monsanto agreed on a final merger agreement. Bayer will pay $57bn to Monsanto’s shareholders, and will take on $9bn in Monsanto’s debt. The deal represents the largest and latest merger in a wave of consolidation that for the past 10 months has been affecting the global market for crop seeds, pesticides and fertilizers. Mergers represent a good way to cut costs, while integrating the development of new seeds and chemicals. The deal is expected to close by the end of 2017.

About Bayer AG

Bayer AG is a German multinational company founded in 1863 and focused on healthcare and agriculture. The company, which has historically been very active in terms of M&A activity, has recently undergone an important restructuring. In January 2016, Bayer spun out its Material Science division into a new publicly traded company called Covestro AG, of which it still owns 69%, and split its core business into 3 divisions: Pharmaceuticals, Consumer Health and Crop Science, which includes also the Animal Health business unit. In 2015, Bayer reported Sales for €46.3bn (a 12.1% increase compared to 2014), 30% of the which come from Europe, 29% from Latin America, 26% from North America and 15% from Asia-Pacific, and an EBITDA of €10.2bn (a 18.2% increase compared to 2014).

About Monsanto Company

Monsanto is an American agrochemical and agricultural biotechnology company founded in 1901 and headquartered in Missouri. It was originally founded as an industrial chemical company, but in the 1980s it shifted its focus and was one of the first companies to apply the biotechnology business model to agriculture.  Monsanto’s business is currently structured in two segments: Seed and Traits, which also includes genetic technology platforms (biotechnology, breeding and genomics) and Crop Protection, which consists of herbicide products. Monsanto is heavily investing in R&D: in the last fiscal year the company reported spending $1.5bn in research and development, the majority of which oriented to bring innovations in the sectors of biotech, breeding and genomics. In 2015, Monsanto reported $15bn revenues (a 5% increase compared to 2014), an operating income of $3.5bn (11% increase compared to previous year) and $2.3bn net income (16% increase compared to 2014).

The Seed and Traits segment accounts for 63% of net sales (and within this segment, 53% is due to corn) and Crop Protection for the remaining 37%. From a geographical point of view, more than half (57%) of Monsanto’s revenues are from the US and the geographical complementarity with Bayer could indeed contribute to the creation of important synergies.

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