GERMAN agribusiness Bayer will create the world’s largest seed and pesticide business if its ambitious $85.9 billion bid to purchase Monsanto succeeds.
Bayer this week officially released details of its all-cash offer to Monsanto shareholders, valuing shares at $169, or a premium of 37 per cent on the share price prior to the news of the offer.
The Monsanto board has not made a decision on whether it will encourage shareholders to take up the offer.
Should the deal go ahead it will be the latest in a string of high profile seed and crop protection business consolidations.
Earlier this year ChemChina snapped up Switzerland based Syngenta for just under $60 billion, while Dow and Dupont are amalgamating to create a $180 billion business.
Analysts are unsure as to whether the deal will get over the line.
Some commentators have suggested the premium will prove too attractive for Monsanto to ignore, while others say more might be required to prise the business out of American hands.
In the wake of the news Monsanto shares have surged 5.27pc, while Bayer has come almost 15pc to hit two and a half year lows, with investors concerned about the cost of the proposed acquisition, which will be an all-cash deal should it proceed.
Competition law also looms as a challenge for the businesses, with a range of jurisdictions likely to cast their eye over any deal, while the sheer scope of both businesses and their subsidiaries also makes brokering an agreement problematic.
Johannes Dietsch, chief financial officer with Bayer, said he believed all issues could be worked through.
“This deal will actually be far less complex than other acquisitions, such as our 2006 acquisition of (German pharmaceutical business) Schering,” he said.
In terms of Australian competition implications market analyst Paul Jensz, PAC Partners, said he felt the companies were in different areas and said he did not think there would be significant regulatory hurdles.
Australia’s supplies of Monsanto’s flagship herbicide Roundup are made and distributed by Sinochem, with Bayer having the larger presence in crop protection and Monsanto more involvement in the seeds space.
There will be a number of easily achieved synergies and advantages to the deal, such as a sharing of GM seed lines, where Bayer’s LibertyLink suite of herbicide resistant (HR) varieties could tie in with the Roundup Ready (RR) products of market leader Monsanto.
The Bayer HR system is based around the chemical glufosinate, while Monsanto’s lines are treated with glyphosate.
In key markets for Monsanto there are concerns about glyphosate resistance.
From an Australian perspective, interest will centre on the product range, which will feature Monsanto's range of genetically modified (GM) seeds, including Australia’s only GM food crop, canola, and Bayer's crop protection products, which include popular selective grass weed herbicides such as Sakura.
Bayer has recently ramped up its presence in crop research in Australia, opening a $14 million breeding facility near Horsham in Victoria.
Monsanto is also involved in the Australia breeding space with an investment in leading WA-based cereal breeder Intergrain.
The ChemChina deal will have a bearing on the price of the Monsanto sale, with analysts saying the valuation of the Swiss business may lead Monsanto officials to ask for more given its strength, the seeds business, has higher growth than the crop protection sector which is Syngenta’s specialty.
Bayer boss Werner Baumann said his company saw the deal as a way of increasing its presence in the Americas.
“It will quadruple our presence in North America and double our presence in the emerging Latin American market,” he said.
He said Bayer analysts estimated there would be up to $1.5 billion in savings in synergies, but did not elaborate exactly where those savings would be made.