Monsanto, the American agrochemical giant and producer of genetically-modified seeds, is to merge with another crop chemical and pharmaceutical behemoth, the Germany company Bayer.
On Wednesday Bayer said it had agreed to pay $66 billion (€58.8 billion) to secure the takeover.
The deal still has to win the approval of shareholders as well as US and European regulators. But it does not come as a surprise, as Bayer has been publicly courting Monsanto since May of this year.
"Bayer and Monsanto today announced that they signed a definitive merger agreement under which Bayer will acquire Monsanto for USD 128 per share in an all-cash transaction," a joint statement announced.
It is believed to be the largest all-cash deal on record.
“The world’s biggest suppliers of pesticides and seeds have gone from six players - ChemChina, Syngenta, Dow, DuPont, Bayer, and Monsanto - to three,” said John Colley, a professor at Warwick Business School in the UK, who researches large takeovers. “There’s an awful lot fewer companies to compete with. They stand a much better chance of being able to increase pricing.”
Bayer is the world’s second largest crop chemical business, with Syngenta AG in the lead, and is notorious for its insistence that its use of neonics is causing no harm at all to the world's population of bees, despite compelling evidence to the contrary, see:
'Scientists Release Landmark Worldwide Assessment Detailing Effects of Bee-Killing Pesticides'
In May, Bayer started the bidding at $122 (€109) per share which would have amounted to $62 billion. At the time, Monsanto held out for more money, but said that it was “open” to further talks.
Bayer subsequently upped its offer, first to $125 per share in July and then to $127.50 last week.
The deal includes a $2 billion break-up fee that Bayer will give Monsanto if regulators block the deal. An intense and lengthy regulatory process is anticipated in the United States, Canada, Brazil, the European Union and elsewhere. Hugh Grant, Monsanto's chief executive, said Wednesday the companies must apply in some 30 jurisdictions for approval.
If it goes ahead, consumer groups and eco-friendly NGOs fear that the newly engorged company will control more than a quarter of the combined world market for seeds and pesticides and will continue to use the extensive lobbying of politicians as a way of ensuring extraordinary profits for controversial products such as the glyphosate, Roundup.
The combined group also will emerge with a total research and development budget of €2.5 billion.
The farm supplies industry has been changing rapidly over the last few years with a number of companies consolidating forces, largely a result of falling crop prices. There is more than enough major crops like corn and soybean to meet demand, which has driven the prices down, which in turn has led farmers to tighten belts and spend less on products such as pesticides and fertilizers.
This ripple effect made it more difficult for major agricultural companies to pay off debts, and has increased the incentive to merge to grab a bigger share of the market, and potentially drive up prices to make up for lower sales to farmers and therefore, consumers,
Bayer’s move to mix its crop chemicals business with Monsanto’s seeds is the latest in a series of major agrochemicals alliances that has sent shock waves through the agricultual industry's free-marketeers whcih see the concentration of power as anti-competitive and a recipe for higher prices and less choice.
US Senator Bernie Sanders, who recently ended a run for the Democratic presidential nomination, called the deal "a threat to all Americans."
"These mergers boost the profits of huge corporations and leave Americans paying even higher prices," said Sanders.
Senators Mike Lee and Amy Klobuchar, the two top antitrust lawmakers, also expressed concern. "The transaction has the potential to result in a significant loss of competition and reduced incentives and ability to innovate, thereby raising prices," said Lee.
Last year China’s state-owned ChemChina took over Syngenta which had been being wooed earlier by Monsanto. U.S. chemicals giants Dow Chemical and DuPont plan to merge and combine their respective seeds and crop chemicals operations into a major agribusiness.
EU regulators tend to be extremely critical of GM crops, so they may put up a fight.
"There is a risk of a lot of regulatory and political scrutiny. We put chance of approval at 50%," Jeremy Redenius, an analyst at Bernstein bank, told the Financial Times.
Monsanto is still notorious for producing Agent Orange, which was used by the US Army to deadly effect in Vietnam. Bayer's WWII record is stained with running forced labour camps under Nazi rule.
