German drug and chemicals company Bayer AG announced May 23 that it has made a $62 billion offer to buy U.S.-based crops and seeds company Monsanto.
The proposed buyout would create a giant seed and farm chemical company with a strong presence in the United States, Europe, and Asia.
Bayer said last Thursday that its executives met recently with their Monsanto counterparts “to privately discuss a negotiated acquisition” of Monsanto—the specialist in genetically modified crop seeds, which is headquartered in St. Louis, Miss. Monsanto said then that it was reviewing Bayer’s proposal.
Bayer said it plans to borrow some $47 billion to finance the acquisition and produce the rest through equity, primarily by issuing new shares.
“Monsanto is a perfect match to our agricultural business,” Bayer CEO Werner Baumann said in a video message posted on his company’s website. “We would combine complementary skills with minimal geographic overlap.”
Monsanto shares suffered a colossal tumble last year that evaporated about quarter of the company’s value. It has been struggling to recover ever since. Monsanto’s last year was rather unimpressive on paper—net sales were down 5 percent, while its net income dropped 16 percent.
Yet, as more news emerged about Bayer’s acquisition appetite, Monsanto’s investors reacted positively, sending shares up by more than 20 percent over the past two weeks.
Bayer, on the other hand, has been paying dearly for the prospective deal. Its shares have lost some 14 percent since May 11. Moreover, the company offered $122 per share, a 37 percent premium to Monsanto’s valuation before the deal was offered on May 9.
Bayer expects the transaction will boost annual earnings by $1.5 billion after three years, thanks to synergies of the two companies. It hopes for more benefits beyond that.
The takeover may allow the companies to better tackle the competition after two major consolidations in the sector in recent months.
Last year DuPont and Dow Chemical announced a merger that would create a $130 billion giant, if approved by regulators.
Earlier this year, China’s ChemChina bought Swiss Syngenta for $43 billion.
