In some of the most surprising news of the week, German drugs and chemicals company Bayer has made an unsolicited takeover proposal to Monsanto (NYSE:MON), a U.S. seeds company. A press release from the company announced, “Bayer executives recently met with executives of Monsanto to privately discuss a negotiated acquisition of Monsanto.” Monsanto confirmed the news with a statement said that its board was reviewing the proposal. However, neither Monsanto or Bayer released the proposed terms of the takeover deal.
A merger between Monsanto and Bayer would create the world’s biggest agricultural supplier. Bayer is currently ranked No. 2 in crop chemicals, with an 18 percent market share. Monsanto is the leader in seeds, with a 26 percent market share. The merged companies would have a combined annual revenue of more than $67 billion.
Any deal would be subject to due diligence, regulatory approvals and other conditions. Some believe that the deal could face U.S. antitrust hurdles because the takeover would cause an overlap in the seeds business, particularly in soybeans, cotton and canola. Any Bayer-Monsanto deal would also reduce the number of major players in seeds and pesticides to four from six. According to statements by the companies, there is no assurance that any transaction will take place.
The proposal comes less than three weeks after Werner Baumann took over as Bayer chief executive. Any deal between Bayer and Monsanto would be Bayer’s largest by far. Monsanto currently has a $42 billion market capitalization. The takeover is likely to exceed $50 billion, according to analysts. Bayer currently has a market value of $90 billion, with products including cancer drugs, flea and tick collars for pets, Yasmin birth control pills, Coppertone sunscreen, Alka-Seltzer, Claritin, and Xarelto.
Many major agrichemical companies are genetically engineering stronger plants and custom-build chemicals that can be used with them. Selling the crops and chemicals together to farmers has become a multi-billion dollar industry over the past decade. The merger with Monsanto would allow Bayer to take advantage of converging pesticides and seeds markets. Sources say that Bayer had been exploring a deal with Monsanto for months, but valuation concerns made a deal elusive.