Bayer is exploring a potential bid for US competitor Monsanto Co in a deal that would create the world’s largest supplier of seeds and farm chemicals, according to people familiar with the matter.
The German firm has held preliminary discussions internally and with advisers about buying Monsanto, which has a market value of almost $40bn, said the people, who asked not to be named because the deliberations are private.
Bayer, which is valued at about €84bn ($96bn), has discussed how to finance a deal including potential asset sales, the people said. No final decision has been made and the Leverkusen-based company could decide against a bid or pursue other transactions with Monsanto, including joint ventures or asset sales, the people said.
Representatives for Bayer and Monsanto declined to comment.
Putting the world’s largest seed maker together with the German company that invented aspirin would bring together brands such as Roundup, Monsanto’s blockbuster herbicide, and Sivanto, a new Bayer insecticide lethal to aphids and whiteflies but not to bees, as well as seeds for crops ranging from corn to sugar cane.
Monsanto rose 18% in early trading after news about Bayer’s interest and a report from StreetInsider late on Wednesday that BASF SE is working with advisers to explore a takeover offer. The company declined 0.9% to $90.34 in New York trading on Wednesday. Bayer shares fell 4.4% to €95.62 in Frankfurt trading at 2:32pm, the biggest intraday decline since January.
It would also help Bayer and Monsanto bolster their positions amid a wave of consolidation in the industry. Rivals Dow Chemical Co and DuPont Co announced last year plans to combine operations in a $130bn transaction, while China National Chemical Corp agreed in February to acquire Syngenta of Switzerland for $43bn.
St Louis-based Monsanto has explored possible deals with Bayer as well as German competitor BASF, people familiar with the matter said in March. Bayer and Monsanto have discussed a number of options from a full combination to the German firm selling all or part of its crop sciences business, as well as joint ventures, the people said at the time. When Bayer raised the idea of a full takeover of Monsanto in March, the US firm said it was not interested in selling, and it sees itself as more of an acquirer, two of the people said this week. If Bayer goes ahead with a bid, it would raise pressure on BASF to consider an offer, the people said.
Still, any deal would face regulatory scrutiny as the industry consolidates. Government regulators globally have nixed more than $20bn in deals this week, including CK Hutchison Holdings’ bid to buy Telefonica’s O2 wireless carrier in the UK and the merger of Staples and Office Depot.
Monsanto is grappling with a global slump in agricultural commodities after its offer to buy Syngenta for about $46.2bn was spurned last year. Sales in the quarter ending in February declined 13% from a year earlier to $4.53bn. Corn and soybean prices fell in the last three calendar years, cutting net farm income in the US and hurting demand for everything from tractors to weedkiller.
A deal with Bayer would help the company reduce its reliance on the agriculture industry, while Monsanto would strengthen Bayer’s seed business, one of the company’s priorities. Bayer said last month that it planned to introduce new genetically modified soybean seeds in Brazil to challenge Monsanto’s dominance.
For Bayer, the talks come as the company is transitioning to new leadership. Strategy head Werner Baumann took over from CEO Marijn Dekkers this month. Dekkers reshaped Bayer, increasing its focus on life sciences by buying Merck & Co’s over-the-counter medicines business and divesting a stake in its plastics unit.
Bayer’s market value has almost doubled since Dekkers took the helm at the end of 2010 as the 152-year-old company sold more prescription drugs for eyes and hearts and added consumer brands like Claritin.
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