Bayer AG’s exploration of a potential bid for Monsanto Co triggered speculation that the German company might need to sell some assets to help fund its quest to create the world’s largest supplier of seeds and farm chemicals.
Bayer has held preliminary discussions internally and with advisers on an offer for Monsanto, which has a market value of about US$43 billion, people with knowledge of the matter said on Thursday.
A deal would give Bayer — whose products range from blood thinner Xarelto to consumer products including aspirin to pest-control treatments for farmers — brands such as Roundup, the world’s best-selling herbicide, and more than 2,000 seed varieties.
Bayer could shed its stake in its plastics unit and its animal health business to make the acquisition work, said Colin Isaac, a chemical analyst with Atlantic Equities in London.
“If Bayer is ready to put up the billions, then voila! That’s the real issue here,” said Lutz Krafft, a former Bayer executive who is now a senior agricultural adviser at consulting firm ChemAdvice GmbH. “The effects on Bayer’s balance sheet and the integration of the company are the two challenges.”
Combining the two businesses is not likely to raise significant antitrust hurdles by itself, but could intensify global scrutiny of the handful of companies engaged in unprecedented consolidation across the crop-chemicals industry.
Competition regulators are already investigating the US$130 billion merger between Dow Chemical Co and DuPont Co, while national security officials in the US weigh China National Chemical Corp’s (中國化工) bid to acquire Syngenta AG of Switzerland for US$43 billion.
Bayer and St Louis-based Monsanto together would have had annual revenue of US$67 billion last year, with 37 percent from pharmaceuticals — including over-the-counter products and diagnostics — and 39 percent from crop chemicals.
“It’s a very ambitious deal for either company,” Isaac said in a telephone interview on Thursday. “Historically, these have been fairly conservative institutions.”
Germany’s second-largest company could pay for some of the deal in cash with 15 billion euros (US$17.02 billion) raised in debt, Jeremy Redenius, an analyst at Sanford C. Bernstein & Co, said in a note on Thursday. It could also issue additional shares and sell assets including the animal health unit, he said.
If Bayer acquires Monsanto, it could position itself as a life sciences business, Isaac said.
Bayer has already started down that path, with the sale of a stake in its plastics business, Covestro AG, through an initial public offering last year, and the acquisition of Merck & Co’s over-the-counter medicines in 2014.
Since Jan. 1, the company has been organized under three divisions — pharmaceuticals, consumer health and crop sciences.
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