Shares of Monsanto Company (NYSE:MON) spiked on Thursday morning after reports emerged that German chemical giants Bayer AG and BASF are both in the fray to acquire the company. On Wednesday evening, financial news website StreetInsider reported that BASF SE is working with investment banks to advise on a potential takeover of Monsanto. Barely a few hours after that, Bloomberg came up with a report revealing that Bayer AG is also exploring a potential bid for the world’s largest seed producer.
According to Bloomberg, Bayer has already held preliminary discussions within the company and with advisers about acquiring Monsanto. Although no final decision has been made regarding the bid, Bayer AG has discussed how to finance a deal, which might involve a potential sale of its assets. If this deal gets completed, it would create the world’s largest seed and agrochemical company. Bayer can also decide against an outright acquisition and pursue other transactions with Monsanto like a joint venture or an asset sale. However, industry watchers believe if Bayer AG goes ahead with the bid, it would put pressure on BASF SE to also come up with an offer for Monsanto.
Consolidation: A Necessity
After the end of the M&A boom in the biotech space, the agrochemical sector is fast becoming a hotbed for such deals. In December last year, Dow Chemical Co and DuPont announced their $130 billion merger, which is expected to get completed by the second-half of this year. Then in February, ChemChina revealed that it has agreed to acquire Switzerland’s Syngenta AG for $43 billion.
Prior to ChemChina’s announcement, Monsanto had made numerous attempts to acquire Syngenta AG, the last one being in January this year when speculation was rife that the two companies are close to reaching a deal. However, after all of its efforts to acquire its largest rival failed to yield any result, Monsanto started looking for other options. In March, Reuters reported that the company held talks with Bayer and BASF about possible collaborations and joint ventures. At that time, Monsanto had also shown interest in acquiring Bayer’s crop science unit in a deal that could have been worth over $30 billion.
Analysts believe that a merger or an acquisition is more of a necessity for Monsanto at this point than a strategy for growth. The decline in agriculture commodities has taken a heavy toll on the company and its stock, which has lost nearly 25% of its value in the last one year (not including Thursday’s gains). Monsanto, on its part, hasn’t been hiding this need either. The company has made it clear over the past several months that it has become necessary for it to join forces with an agrochemicals company in order to provide farmers with a one-stop solution.
Few Antitrust Hurdles
While antitrust regulators across the globe have been quite active in disapproving large M&A deals this year, legal experts believe that a deal between Monsanto and Bayer won’t face significant regulatory hurdles. That’s because both the companies have little in common product-wise. The only product where both the companies compete in a big way is weed killers, which in itself is not a big business for either Bayer or Monsanto. Nevertheless, if both the companies are indeed planning to merge, analysts believe they should prepare themselves for intense scrutiny from regulators, especially here in the U.S.