Merger Arbitrage Blog

Bayer and Monsanto Merger Analysis-Part 1

Bayer is a global life science company with four major line of businesses including Pharmaceuticals, Consumer Health, Crop Science and Animal Health. The businesses we are interested in this merger analysis will be Corp Science and maybe a part of Animal Health. The two other divisions does not involve the same sector of business with Bayer’s merger target Monsanto so we will not analyse these divisions.


Bayer’s Corp Science division is the world’s third largest in sales of agricultural chemicals and products with annual revenue around $9 Billion.


On 13th Oct 2017, Bayer agreed to divest certain assets to BASF in order to satisfy regulators concerns regarding competition in the market following the merger.

BASF’s statement stated that “BASF signs agreement to acquire significant parts of Bayer’s seed and non-selective herbicide businesses”. The all cash transaction cost BASF EUR 5.9 billion for a business that generates about EUR 1.3 billion in sales and EBITDA of EUR 385 million during 2016. Sales in U.S roughly accounts for 70% and rest of Americas (Canada, South America) 15% for a total of 85% of sales.

Let’s look at the assets that will be divested from BASF’s document (Link):

  1. LibertyLink brand of GMO seeds and traits portfolio for major crops in U.S. and Americas like soyabeans, canola and cotton. Brands include InVigor for Canola, Credenz for soyabeans, FiberMax and Stoneville for cotton.
  2. Complimentary crop protection business including the global glufosinate-ammonia based non-selective herbicide business. [side note for investors not familiar with agricultural business. *Non-selective herbicide means a broad action herbicide that is supposed to work against all weeds. That means one spray and farmers can take care of all the weeds problem. Traditional herbicides each work on some types of weed and a farmer had to do several sprays of different herbicides to get effective weed control in the past. * Glufosinate is not to be confused with Monsanto’s Roundup ingredient – Glyphosate but both are competing non-selective herbicides in the market. *LibertyLink seeds will tolerate glufosinate herbicides so the crop protection works in tandem with the seeds.]
  3. 10 R&D sites including researchers, future pipelines and Intellectual Properties. Most probably will be the LibertyLink IP and associated R&D.
  4. 5 Chemical production and formulation sites probably for production of the non-selective herbicides.
  5. Regional seeds production and breeding sites which most probably produces the LibertyLink seeds. [Farmers are not allowed to harvest LibertyLink seeds from their own plants. They have to buy the seeds for every harvest.]
  6. Bayer has also promised to sell its entire vegetable seeds company ‎Nunhems to another buyer which maybe BASF as well. This is to satisfy EU concerns on overlaps with Monsanto’s vegetable seeds business.

There is also another document which Bayer submitted to India’s CCI (Competition Commission of India) – See Link here which explained in much greater detail where the overlaps and which assets will be divested to BASF. I will note down some important points relating to U.S market briefly below as most of the document relates to the Indian market:

    1. Bayer has executed a definitive agreement with BASF dated 13 October 2017 to divest the following businesses:
      i. Bayer’s worldwide glufosinate ammonium business;
      ii. Bayer’s Liberty Link technology which confers traited plants with a
      resistance to the non-selective herbicide glufosinate ammonium,
      including the related intellectual property licensing business worldwide;
      iii. Virtually all of Bayer’s agricultural seeds and traits business worldwide
      (including all of its transgenic events and traits in cotton, corn, oilseed
      rape, canola and soybean). The very limited agricultural seeds and
      traits activities that are not part of the agreement with BASF include
      Bayer’s small Indian cotton seeds business;
      iv. Bayer’s primary R&D facility for GM seeds and traits in Morrisville,
      North Carolina, USA.
    2. Bayer has already entered into a definitive agreement with BASF to, inter-alia, divest all of its global transgenic events as well as in and out-licensing contracts, related registrations and registration data, and all intellectual property related to its traits. Bayer is also transferring its traits research facilities to BASF. In effect, Bayer will no longer retain any of its GM traits relating to seeds worldwide. This includes LibertyLink, GlyTol, TwinLink and TwinLink Plus traits. [Bayer is divesting all its GM traits and this includes its Bt (Bacillus thuringiensi) traits]
    3. Seed treatment entails purchasing a chemical formulation and coating
      seeds with that formulation. There are no barriers to obtaining either the seeds or the formulation, and that coating process is simple, not involving any sophisticated machinery or intellectual property. It is also important to highlight that seed treatment products have various substitutes and a farmer who sows un-treated seeds can use other crop protection products as and when required. It may be reiterated that a subsistence of high market shares cannot confer dominance on an entity due to ease of entry in the seeds treatment segment.
    4. It is important to highlight that the Proposed Combination brings together largely complementary portfolios of two companies. An enhanced portfolio is widely regarded as being welfare neutral to welfare enhancing. This accepted in developed competition law jurisdictions. Further, the pro-competitive effects of as enhanced portfolio is also well established. Most importantly, technical and commercial bundling of GM seeds with certain crop protection products is neither possible nor probable. [this point is important because some analysts argued that DOJ may want more divestitures due to vertical merger concerns but it shows the complex nature of agricultural products that the analysts did not even know. From this statement we know that it is impossible to bundle Monsanto’s Roundup products with Bayer’s selective herbicides, fungicides and pesticides nor is there any sense in foreclosing access to these products.]



Updated: April 3, 2018 — 1:22 pm

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