German drug and crop chemical manufacturer Bayer (DE:BAYGN) secured a $66 billion takeover of seed company Monsanto (NYSE:MON) on Wednesday, putting an end to months of arguing with a third improved offer that marks the biggest all-cash deal on record.
The $128 per share deal has materialized as the signature deal in a consolidation race that has dimmed the agribusiness sector in the past few years, due to changing weather patterns, intense competition in grain exports and a weakening global farm economy.
"Bayer’s competitors are merging, so not doing this deal would mean having a competitive disadvantage," said one of Bayer’s top 12 investors.
However, the proposed acquisition will potentially encounter and intense and tedious regulatory process in the United States, Canada, Brazil, the European Union and elsewhere. Monsanto chief executive Hugh Grant explained on Wednesday that the companies are required to file in nearly 30 jurisdictions for the merger.
Competition authorities are likely to examine the agreement closely, and some of Bayer’s shareholders have been highly doubtful of a takeover that they claim to risks overpaying and neglecting the company’s pharmaceutical segment.
The deal will create a company dominating more than a quarter of the mixed world market for seeds and pesticides in the fast-merging farm supplies industry. The name of the newly-established company remains unclear.
Grant said during a media conference call that the future of the Monsanto brand has not yet been tackled, but the world’s largest seed company is flexible about the name advancing.
The merger involves a $2 billion breakup fee that Bayer will pay to Monsanto if it fail to obtain regulatory clearance. Bayer projects the transaction to close by the end of 2017, according to sources.
On Tuesday, analysts said that they expect only a 50 percent chance of the deal winning regulatory clearance, although they mentioned a survey among investors that put the possibility at 70 percent 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," analysts wrote.
Before its first written proposal, Bayer said it was offering a 44 percent premium to Monsanto’s share price on May 9.
The company intends to raise $19 billion to help fund the deal by releasing convertible bonds and new shares to its existing shareholders, and said banks has also pledged to providing $57 billion of bridge financing.
Monsanto Shares Up On Bayer Deal
Shares of Monsanto and Bayer edged higher on Wednesday. Bayer shares climbed 0.3 percent to 93.55 euros, while Monsanto stock rose 0.6 percent to $106.79.
However, analysts believe that the deal still faces considerable anti-trust issues. "Monsanto seems more confident as they have accepted a reverse break fee of 'only' $2 billion," a market analyst noted. "Our concerns on antitrust of direct product overlap are likely resolvable with divestments, we estimate asset sales up to $1.2 billion from cotton & canola seeds, glufosinate herbicide and trait."
Monsanto endures conglomerate anti-trust concerns as it is a huge integrated crop protection and seeds company.
On the other hand, Bayer’s decision to combine its crop chemicals business with Monsanto’s leading seeds business is the latest in a string of key agrochemicals mergers.