After months of negotiations, Monsanto, the U.S. maker of fertilizers and agriculture products, agreed on Wednesday to a takeover by Bayer, the German chemical conglomerate, for $56 billion.
Bayer will acquire Monsanto for $128 per share in cash, according to a statement from the companies. That price represents a 44 percent premium to Monsanto’s stock on May 9, the day before Bayer’s interest in a deal first surfaced. Including the assumption of debt, the transaction is valued at $66 billion.
Bayer, based in Leverkusen, Germany, said the companies’ combined agriculture business would keep its seeds business and North American business headquarters in St. Louis, where Monsanto is currently based. Its crop science headquarters will be in Monheim, Germany. Their digital farming activities will be based in San Francisco.
Bayer has about 1,300 employees in the Kansas City area. Its North American Animal Health business is based in Shawnee, where it has about 550 workers.
The deal is among the largest German corporate takeovers of a U.S. company, and would make Bayer the world’s largest supplier of seeds and farm chemicals, according to a recent note by Argus Research. But it faces the risk of government opposition at a time when regulators have not been shy in quashing transactions over antitrust concerns.
An analysis by Bloomberg law found that over the last few years, deals greater than $10 billion had a 30 percent failure rate. Bayer and Monsanto would be two of the remaining agribusiness giants to merge, and regulators are likely to scrutinize whether the deal could raise prices that farmers pay for seeds and chemicals.
The European competition regulators said publicly before a deal was even signed that they would look at how the combination could affect prices and the availability of seed products as well as research.
To assuage Monsanto’s concerns, Bayer threw in a $2 billion breakup fee if the deal fell apart on antitrust grounds.
Bayer first revealed an offer for Monsanto in May, but that bid was promptly rejected, as was a revised offer later in the summer. Both times, Monsanto said the proposal was too cheap but that it remained open to discussions with both Bayer and other parties.
The pressure increased for Monsanto to find a tie-up as many other agribusiness giants reached milestones toward closing their own deals. Two American rivals, Dow Chemical and DuPont, agreed to a merger last year to combine their crop-sciences businesses, and that transaction is under Justice Department review.
And the deal comes not long after a U.S. regulator gave approval for another merger in the agribusiness world. The regulator, the Committee on Foreign Investment in the United States, said on Aug. 22 that the China National Chemical Corp. was cleared to purchase the Swiss chemical and seed company Syngenta for $43 billion. That removed one of the biggest obstacles for the deal, putting additional pressure on Monsanto to find a combination elsewhere to compete (Syngenta rejected a takeover bid by Monsanto last year).
This is the second large, agriculturally related deal announced this week after Potash Corp. of Saskatchewan and Agrium decided to merge, creating a Canadian fertilizer giant.
Monsanto is famous for its production of genetically modified seeds, while Bayer is well known for the aspirin that carries its name. In addition to health care, Bayer also has a crop sciences division, in which Monsanto would fit.
Bayer plans to finance the all-cash transaction by raising $19 billion in equity through mandatory convertible bonds and a rights issue. Bank of America, Credit Suisse, Goldman Sachs, HSBC and JPMorgan Chase have committed to provide bridge financing for $57 billion more.
Bayer expects the deal to add to earnings in the first year after it closes, and projects the companies will produce $1.5 billion of benefits from sales and cost-cutting after the third year.