Bayer to acquire Monsanto- Impact on Indian Subsidiaries

Bayer, the German drugs and crop chemicals company is all set to take over U.S. seeds firm Monsanto for a hefty amount of $66 billion including debt, ending months of wrangling after increasing its bid for a third time. The US$ 128 per share deal announced on 14th September, up from Bayer’s previous offer of US$ 127.50 per share, is the biggest bid of the year so far and the largest cash bid on record. This transaction will create a company commanding more than a quarter of the combined world market for seeds as well as pesticides in a fast-consolidating farm supplies industry. According to Markus Manns, a fund manager at Union Investment, one of the Top 12 investors of Bayer, the firm’s competitors are merging, so not going through with this deal would mean having a competitive disadvantage. Few people had expected a deal to be agreed at less than US$ 130 a share, but that there were regulatory risks as well as the acquisition would also leave Bayer with less scope to invest in healthcare, where rivals are consolidating too, he added. Bayer’s Break-Fee According to the terms of the transaction, Bayer will pay US$2 billion to Monsanto if it fails to get regulatory clearance. Bayer expects to close the deal by the end of 2017. As per some analysts the deal could face a rough ride from the U.S. politicians who might oppose to a key supplier of U.S. agriculture falling into foreign hands and from farmers who are concerned a reduction in competition could lead to higher prices. However, Bayer announced that though it needs approval from antitrust authorities in 30 jurisdictions, its initial feedback from both regulators and politicians was encouraging. The German firm expected the deal to boost core earnings per share in the first full year following completion and by a high double-digit percentage in its third year. It is also targeting US$ 1.2 billion in annual cost synergies and US$ 300 million in sales synergies after three years. Bayer’s aim to combine the crop chemicals business, the world’s second largest after Syngenta, with the leading seeds business of Monsanto, is the latest in a series of major tie-ups which have taken place in the agrochemicals sector in the recent times. The German drugs and crop chemicals company wants to create a one-stop shop for seeds, crop chemicals as well as computer-aided services to farmers. Elsewhere, U.S. chemicals giants Dow Chemical and DuPont plan to merge and also later spin off their respective seeds and crop chemicals operations into a major agribusiness.

Impact on the Indian Market In the Indian market we saw massive movement in the share price of both the Companies. Bayer Cropscience share price gave a huge surge to make a new lifetime high of Rs 4,380.05 on NSE. The share price closed at Rs 4,134.60, up by 0.39 per cent. On the other hand, Monsanto share price closed at 2,530.50 on NSE. The intraday high and the intraday low are Rs 2,728.00 and Rs 2,510.00.The result of the merger is expected to be beneficial for both the companies.

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