German drug and crop chemicals firm Bayer said it finally reached an agreement to acquire US seeds and agribusiness giant Monsanto for $128 per share — or roughly $66 billion — in the largest ever proposed all-cash transaction.
The offer represents a premium of 44% to Monsanto’s closing share price on May 9, the day before Bayer’s first written proposal.
The proposed merger is likely to face tough and lengthy regulatory and political scrutiny in many countries.
The transaction includes a $2 billion break-up fee that Bayer would have to pay to Monsanto should it fail to get approval.
Monsanto’s board of directors, Bayer’s board of management and Bayer’s supervisory board have unanimously approved the agreement.
“This represents a major step forward for our crop science business and reinforces Bayer’s leadership position as a global innovation driven life science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees and society at large,” said Werner Baumann, CEO of Bayer.
Monsanto’s Scottish CEO, Larkhall-born Hugh Grant, said: “Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders at Monsanto.
“We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration.”
Grant stands to make up to $226 million if the deal goes through, according to the Financial Times.
However, Reuters reported that Bernstein Research analysts said they saw only a 50% chance of the deal being cleared by regulators — although Bernstein did cite a survey of investors that put the likelihood of regulatory clearance at 70% on average.
“We believe political push-back to this deal, ranging from farmer dissatisfaction with all their suppliers consolidating in the face of low farm net incomes to dissatisfaction with Monsanto leaving the United States, could provide significant delays and complications,” wrote the Bernstein analysts in a research note.
Bayer said the deal would bring together two different but highly complementary businesses.
“The combined business will benefit from Monsanto’s leadership in Seeds & Traits and Climate Corporation platform along with Bayer’s broad Crop Protection product line across a comprehensive range of indications and crops in all key geographies,” said Bayer.
“As a result, growers will benefit from a broad set of solutions to meet their current and future needs, including enhanced solutions in seeds and traits, digital agriculture, and crop protection.”
Liam Condon, head of the Crop Science Division at Bayer said: “The agriculture industry is at the heart of one of the greatest challenges of our time: how to feed an additional three billion people in the world by 2050 in an environmentally sustainable way.
“It has been both companies’ belief that this challenge requires a new approach that more systematically integrates expertise across Seeds, Traits and Crop Protection including Biologicals with a deep commitment to innovation and sustainable agriculture practices.”
Monsanto’s Grant said: “We are entering a new era in agriculture – one with significant challenges that demand new, sustainable solutions and technologies to enable growers to produce more with less.
“This combination with Bayer will deliver just that – an innovation engine that pairs Bayer’s crop protection portfolio with our world-class seeds and traits and digital agriculture tools to help growers overcome the obstacles of tomorrow.
“Together Monsanto and Bayer will build on our proud tradition and respective track records of innovation in the agriculture industry, delivering a more comprehensive and broader set of solutions to growers.”
Bayer said it intends to finance the cash deal with a combination of debt and equity.
The equity component of $19 billion is expected to be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights.
Bayer said bridge financing for $57 billion is committed by BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan.
“The acquisition is subject to customary closing conditions, including Monsanto shareholder approval of the merger agreement and receipt of required regulatory approvals,” said Bayer.
“Closing is expected by the end of 2017. The companies will work diligently with regulators to ensure a successful closing.
“In addition, Bayer has committed to a $2 billion reverse antitrust break fee, reaffirming its confidence that it will obtain the necessary regulatory approvals.”
BofA Merrill Lynch and Credit Suisse are acting as lead financial advisors and structuring banks to Bayer in addition to providing financing for the deal.
Rothschild has been retained as an additional financial advisor to Bayer. Bayer’s legal advisors are Sullivan & Cromwell LLP (M&A) and Allen & Overy LLP (Financing).
For Monsanto, Morgan Stanley & Co. and Ducera Partners are acting as financial advisors, and Wachtell, Lipton, Rosen & Katz is legal advisor.