German pharmaceuticals giant Bayer AG and US agricultural group Monsanto Co yesterday said they are in talks on a possible merger to create a global player in pesticides and seeds, after weeks of speculation about a possible tie-up.
“Bayer executives recently met with executives of Monsanto to privately discuss a negotiated acquisition of Monsanto Company,” the Leverkusen-based company said in a statement.
Monsanto, for its part, “disclosed ... in response to recent media reports that it has received an unsolicited, non-binding proposal from Bayer AG for a potential acquisition of Monsanto, subject to due diligence, regulatory approvals and other conditions.”
However, both sides emphasized that the talks were still only exploratory at this stage.
And neither mentioned how much any proposed deal would be worth.
“There is no assurance that any transaction will be entered into or consummated, or on what terms,” Monsanto said, while Bayer said that the talks were still only “preliminary” and “a further statement would be made as appropriate.”
A combination would create a new giant in the seeds and pesticides sectors. Agricultural suppliers like Monsanto have been pressured by low commodity prices that have caused farmers to cut orders for supplies. In March, Monsanto slashed its earnings forecast for this year.
Following its unsuccessful bid for Syngenta, Monsanto, which is based in Saint Louis, Missouri, embarked on a huge restructuring program, axing 3,600 jobs, or 16 percent of its workforce by 2018, closing sites and writing down assets. The company employs about 20,000 workers.
The US group has been in the headlines in Europe recently over the weedkiller glyphosate, which it markets under the name Roundup, and is suspected of causing cancer in humans and posing a serious risk to biodiversity.
Bayer shares were the biggest losers on the blue-chip DAX 30 in Frankfurt, Germany, plunging 7 percent to an intraday low of 89.65 euros in an overall market down by about 1 percent yesterday.
According to analysts at Deutsche Bank AG, Monsanto’s management is seeking a purchase price of about US$150 per share, which would represent a huge mark-up on the current share price of about US$97.
The analysts therefore felt a deal was unlikely because of the price, as well as possible reservations on the part of the competition authorities toward a combination of Bayer and Monsanto.
Furthermore, analysts at Credit Suisse Group AG said that Bayer’s financial firepower was “very limited” after it paid out 10 billion euros (US$11.22 billion) for the prescription-free drugs business of US firm Merck & Co in 2014, a deal which has not really fulfilled Bayer’s expectations so far.
Bayer, which employs about 117,000 workers, turned in record profits and sales last year, notching up net profit of 4.1 billion euros on sales of 46.3 billlion euros.
“The proposed combination [with Monsanto] would reinforce Bayer as a global innovation-driven Life Science company with leadership positions in its core segments, and would create a leading integrated agriculture business,” the company said.
The German group recently floated its former material sciences division on the stock market under the name Covestro and reorganized its remaining pharmaceuticals — both prescription and non-prescription drugs — and agrochemicals operations.
It has also recently changed its chief executive, with Dutch Marijn Dekkers stepping down early to take up a position at Unilever PLC. His successor, Werner Baumann, took over at the beginning of this month.
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