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The Justice Department granted antitrust approval on Tuesday for Bayer’s BAYRY proposed acquisition of Monsanto MON, after requiring the German giant to divest roughly $9 billion worth of assets and businesses. So let’s dive into a quick overview of everything investors need to know about the deal.
Bayer is a Leverkusen, Germany health care, pharmaceutical, and agriculture conglomerate that is currently a major force in the pesticide industry and employs almost 100,000 people worldwide. St. Louis-based Monsanto is a world leader in seeds and crop genes. Therefore, at the moment, Bayer is much bigger in Europe and Asia, while Monsanto’s presence in North America is huge.
The roughly $66 billion merger was initially announced in September 2016, and would make Bayer the world’s largest supplier of pesticides and seeds. Bayer received antitrust approval from the EU on March 21. The DOJ’s approval was one of the last remaining regulatory hurdles to jump in order for Bayer to officially buy Monsanto.
The move also comes after Dow Chemical and DuPont DWDP successfully completed their merger last September. Meanwhile, investors await news about AT&T’s T acquisition of Time Warner TWX, with a federal judge expected to hand down a decision by June 12.
The DOJ announced that it required Bayer to move on from $9 billion of assets businesses, which the department said in an official statement was the “largest merger divestiture ever required by the United States.”
The antitrust division was reviewing Bayer’s acquisition based on the idea that it would lead to higher seed prices and negatively impact both farmers and consumers. “Without the agreed-to divestitures, the proposed merger would likely result in higher prices, lower quality, and fewer choices across a wide array of seed and crop protection products. The merger also threatened to stifle the innovation in agricultural technologies that has delivered significant benefits to American farmers and consumers.”
Bayer must now divest its businesses that compete with Monsanto. The list of businesses Bayer must divest includes: cotton, canola, soybean, and vegetable seed businesses, along with Bayer’s Liberty herbicide business—which the DOJ noted is a key competitor to Monsanto’s Roundup brand.
Furthermore, the settlement requires “structural divestitures” and the sell-off of some intellectual property and research capabilities, in order to foster a competitive environment going forward. This includes Bayer’s relatively new “digital agriculture” business.
The German giant will sell these businesses and assets to chemicals rival BASF SE BAS, which the DOJ referred to as “an experienced chemical company with a substantial crop protection business” that will “fully resolve all horizontal and vertical competition concerns.” The DOJ now believes that “American farmers and consumers will continue to benefit from competition in this industry.”
The planned merger is now subject to a 60-day public comment period. “Receipt of the DOJ's approval brings us close to our goal of creating a leading company in agriculture,” Bayer CEO Werner Baumann said in a company statement. Bayer noted in the same statement that it has “obtained almost all clearances” and now expects to receive all outstanding approvals “very shortly.”
“According to the DOJ's conditional approval, the integration of Monsanto into Bayer can take place as soon as the divestments to BASF have been accomplished. This is expected to be in approximately two months.”
Shares of Bayer and Monsanto both opened higher on Wednesday following the DOJ announcement. However, over the last five years, both Bayer and Monsanto have greatly underperformed the S&P 500’s 68% surge. BAYRY stock is up just 11.8%, while MON has climbed 26.7%.
Over the last year, investors can see that things look even worse for Bayer, which is one of the reasons that it hopes its planned merger finally goes through after two years of speculation and review.
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