American seed and weed-killer company Monsanto and German medicine and farm chemical maker Bayer are combining in a deal that could help farmers produce higher yields to address challenges from global warming to rising food demand from a fast-growing global population.
Consumers could benefit from more-affordable and healthier food options as well as the companies' using their expertise to help farmers limit their chemical use and environmental impact, company executives said Wednesday after the all-cash deal was announced.
It comes amid record harvests driving crop prices to painfully low levels for many farmers.
After four months of courtship, Leverkusen, Germany-based Bayer AG said Monsanto Co. accepted its third offer. In addition to the $57 billion price for shareholders, Bayer is assuming $9 billion in Monsanto debt. It will pay Monsanto shareholders $128 per share, $6 above its initial offer and a 44 percent premium over the St. Louis company's closing price before rumors of a bid emerged.
Because Bayer is mainly funding the deal through debt, by selling bonds and stock, Jefferies LLC analyst Jeffrey Holford wrote to investors, Bayer's increased debt load could limit investment in its "sub-optimal" prescription drug pipeline and its consumer health business.
The deal would create a global agricultural and chemical giant with a broad array of products. Fitch Ratings noted the combined Bayer would have a 25 percent share in some markets, "almost certainly drawing regulatory scrutiny and posing antitrust obstacles."
That's because the deal combines two of the six U.S. and European companies that dominate in agrochemicals.
"It will ... create an innovation engine for the next generation of farming," Monsanto CEO Hugh Grant said.
The world's population is expected to jump by nearly 3 billion people, to 9 billion, by 2050. Together with the effects of warmer temperatures, more-severe storms, less land available for farming and the need to reduce pollution and greenhouse gas emissions from farming operations, that is pressuring farmers to be more productive.
"It's going to take a lot of innovation to ensure that everybody can be fed," and the combined company will be able to speed up product improvements to help, Liam Condon, head of Bayer Crop Science, told The Associated Press.
Affordability also is an issue, Condon said, as people in many poor countries spend more than half their income on food, compared to 10 percent to 15 percent in the U.S.
Bayer and Monsanto both are well known to farmers and home gardeners. Monsanto sells seeds for fruits, vegetables, corn, soybeans, cotton and other crops, plus heavily advertised Roundup weed killer. Bayer sells chemical and biologic crop protection products and the Bayer Advanced garden chemicals line.
Both companies offer services in "digital farming," helping farmers use data from sensors in their fields and satellites to improve crop yields by choosing the best seeds and applying just the right amount of chemicals at the right time throughout the growing season.
Monsanto is a top maker of seeds genetically modified to resist drought, weeds and insects, among other "traits." They're not accepted in Europe due to health concerns, so Monsanto sells little in Bayer's backyard. Bayer is a major agricultural supplier in Europe, Asia and Africa, though it's best known for prescription drugs such as blood clot-preventer Xarelto and consumer health products including Aleve pain reliever and One A Day and Flintstones vitamins.
"The overlaps are minimal," Grant told reporters on a conference call. He said the deal "represented the most compelling value for our shareholders."
Bayer and Monsanto executives said they won't identify areas of business overlap before regulators in the EU, U.S., Canada, Brazil and two dozen other countries review the acquisition for potential antitrust issues. Bayer said it's so confident of approval that it's offered Monsanto a $2 billion breakup fee if the deal falls through.
Bayer and Monsanto executives wouldn't discuss the fate of the Monsanto name, but said the combined company's seeds and North American business will have headquarters at Monsanto's St. Louis base.
The companies also wouldn't discuss possible job cuts. Those are standard after big mergers and implied in this one, given that 80 percent of the $1.5 billion in synergies the companies predict after three years will be cost cuts in administration, sales and marketing.
Bayer said the trans-Atlantic tie-up should close before the end of 2017. Monsanto plans a shareholder vote on the deal in a few months.
In U.S. trading, shares of both companies closed up 0.6 percent, with Bayer at $104.85 and Monsanto at $106.76.
Johnson reported from Trenton, New Jersey, and McHugh reported from Frankfurt, Germany.
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