The Consolidating Food Industry: Bayer AG (BAYRY) and Monsanto Company (MON)

I talked in a previous Smart Talk article about the pressure American farmers are coming under because of their huge reliance on overseas exports and taxpayer subsidies, and they’re taking a hit once again due to lower commodity prices. As a result, the global agrochemical industry is in consolidation mode.

Bayer AG (ADR) and Monsanto Company: Consolidation Continues in the Food Industry (BAYRY MON)

Source: iStockphoto

ChemChina has plans to buy Syngenta AG (ADR) (SYT) for $43 billion. Dow Chemical Co (DOW) and E I Du Pont Nemours And Co (DD) are also merging into a $130 billion business. And the latest in the series of takeout offers is Bayer AG (ADR)’s (BAYRY) $62 billion bid for Monsanto Company (MON).

The BAYRY Bid for MON

Bayer is a German life sciences company focused on improving the quality of life through a combination of healthcare and agriculture. Monsanto, the world’s largest seed company, had previously approached BAYRY in March to express interest in its crop science unit, but rather than forge a deal based solely on that unit, Bayer made a bid for the whole company.

The company proposed a $62 billion buyout offer, or $122 per Monsanto share in cash, representing a 37% premium over MON prior to news of the potential deal. It was the largest all-cash takeover bid on record, only slightly higher than the $60.4 billion InBev offered for Anheuser-Busch in June 2008. The proposition also came shortly after Werner Baumann took over as Bayer CEO.

But Monsanto rejected the offer, stating that it would greatly undervalue the company. Many on Wall Street agreed, and MON moved higher on the day. While Bayer stood by the value its offer represented, both companies have expressed interest in continuing negotiations.

This puts added pressure on Bayer, as many of its shareholders had expressed concerns that the offer was already too high. Now, management has to decide if a merger with Monsanto is worth the even higher price.

We’ll find out in time, and in the meantime Monsanto can keep creating lofty goals that will positively impact mankind through sustainable agriculture and getting more crop production out of fewer resources.

If the buyout were to happen after all, it would create a global food behemoth competing against Syngenta/ChemChina and the merged Dow/DuPont.

Think of population growth outside the western world and you can see the growing demand for food. Even in Europe, the public relations aspect that has virtually barred these seeds and foods from the continent will need to be reconsidered with the growing need to feed people.

The world will never stop needing food, which leaves plenty of growth for companies only looking to improve it.

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