Bayer’s Acquisition of Monsanto

Abstract

Agriculture supply industry has witnessed consolidation with the three major mergers of which Monsanto–Bayer merger was the biggest. The other two mergers were DowDuPont and Syngenta–ChemChina mergers. In May 2016, Bayer the German pharmaceutical and drug company made an unsolicited offer to buy Monsanto, the US agrichemicals giant at $122, a share which was approximately valued at $66 billion at that time of the deal. The acquisition was aimed to boost agriculture research and innovation for doubling the world’s food supply by 2050. The deal required approval from regulators in 30 countries. The deal was the largest overseas deal ever by a Germany company. It was also the largest all cash buy out on record. With the merger, Bayer became single biggest supplier of seeds and crop protection chemicals in the world. The two companies were very strong companies offering similar products and had strong R&D capabilities. Under the current system, it was stated that it takes approximately 10 years for a company to develop and get approval for a new herbicide. Similarly it takes the same time period to make a seed trait which responds to the new chemical. The merger would facilitate Bayer and Monsanto’s combined resources to develop the paired products in a shorter period of time. The merger gave a “first mover” advantage for Bayer–Monsanto to create the biggest platform which would facilitate Bayer–Monsanto to control the food value chain in terms of which pesticides to be used and which seeds to be planted. The acquisition created a leading integrated agriculture business with broad product portfolio to provide innovative solutions. Total synergies of approximately $1.5 billion after 3 years of merger were expected along with additional integrated benefits. The cumulative return for the entire period of 539 days surrounding the acquisition period (−5 to +531 day) for Bayer was approximately 6.72%. The cumulative return for Monsanto stock during the time window period 0 to +25-day period was approximately 19.50%.