Investors’ views on Monsanto-Bayer deal

Few days have passed since it was announced that Germany-based Bayer had acquired Monsanto for $66bn (including debts; 44% premium), a deal which transforms the Leverkusen-based group in the world’s biggest pesticide and seed producer and will probably overshadow the pharmaceutical business, which will account for slightly less than 50% (€23bn) of the group total revenue (€47bn). The announcement led to widespread skepticism in the market; investors, indeed, are worried about the group debt level (€17bn in 2015) once the deal is completed, although Bayer will pay almost no interest on the loan. Environmentalists opposed the acquisition because of the glyphosate scandal and farmers’ associations are worried that the group’s almost leading position will result in rising prices for seeds and pesticides. Skepticism caused, soon after the announcement, a 2.3% fall of Bayer shares (Frankfurt), which lost in fact approximately 8% since merger talks started in May. It is estimated that, in order to finance the acquisition, Bayer will have to sell a significant part of its stake in Covestro (64%) and other non-core assets, such as the dermatology business, which could raise €1bn for Bayer. An issue not fully taken into consideration by specialized press is Monsanto’s integration into the Bayer system. According to many analysts, there is a real danger that the merger results in a failure due to considerable differences in business culture between the groups, similarly to the other great takeover performed by a German company, that is the €39bn deal signed in 1998 between Daimler and Chrysler. (Source Handelsblatt, Wirtschaftswoche, WSJ)