A record breaking cash transaction will be completed later this week that will create the world’s largest pesticide and seed retail entity. German chemicals titan Bayer announced that a deal has been finalized with U.S. firm Monsanto for a huge $67 billion.
Monsanto, who are famous for their GM seeds for crops, said their shares hold a value of $129 in relation to the offer.
Bayer specialises in healthcare products but has been through a major diversification process recently, especially into the agricultural sector.
Genetically modified seeds are used widely in the United States, but stern environmentalist opposition has so far scuttled plans to introduce them into Europe. Bayer hopes to change that situation. They say if the world wants to feed its growing population then GM foods are vital.
“This is going to bring substantial benefits not only to Bayer shareholders and staff, but to the population of Europe at large,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in a phone interview.
The takeover comes amid a torrent of M&A action in the agricultural industry as declining crop prices force farmers to count their pennies, decreasing profits for the big companies in the sector. In order to save operational costs, the industry has been consolidating.
Other major firms in the sector, including Syngenta, DuPont and Dow Chemical, have all announced mergers in the past year.
Regulatory watchdogs will be scrutinizing those deals and also the Bayer-Monsanto tie-up, as there will be concerns over anti-competition with the current offer threatening to create an entity that would control 25% of the world’s supply of pesticides and seeds.
Farmers have been vocal in their opposition to the merger, citing that the move will probably lead to spiralling seed prices and less choice of seeds in general.
Monsanto has been described as the 'Frankenstein crop producer’ by some in the media and many observers are worried European farmers will be at a strong disadvantage if the deal goes through.
Bayer has paid a massive premium for Monsanto, nearly a 50 percent upward revision from the previous share price before talks began. Should the deal fall through, the fleeing party would have to pay a $3 billion fine.
In response to the news, Monsanto shares gained 1.7 percent and Bayer shares were up nearly 4 percent in New York’s morning session on Friday.
