Confidence in Agriculture Mergers Solidifies

23.02.2017 -

The first of the three mega mergers affecting mainly the global agrochemicals sector, the $130 billion link-up of Dow Chemical and DuPont, could win EU approval soon, the news agency Reuters has reported, quoting “two people familiar with the matter. While the word from the US and other international antitrust authorities is still out, the European Commission is seen as the toughest nut to crack.

Following a January meeting between the proposed merger partners, at which the two companies offered concessions – DuPont promising to sell a portion of its crop protection business and related R&D and Dow agreeing to sell its acid copolymers and ionomers business to South Korea's SK Innovation – EU Competition Commissioner Margrethe Vestager said the outcome of the regulatory authority’s in-depth probe was” still very much open.” The Commission has expressed concern in particular about how the merger of giants would affect innovation in agriculture.

One of Reuters’ sources commented that the most recent concessions were “very minor tweaks.” The source said the fact that the authority would not seek third parties' views on the changes was a “clear sign” that it is a done deal. Earlier this month, Dow and DuPont asked for an extension of the merger review until Apr. 4. The news agency said the EU is also likely to greenlight ChemChina's $43 billion bid for Swiss agrochemicals  group Syngenta as well as Bayer’s $66 billion plan to acquire US agrochemicals and seeds giant Monsanto. 

In presenting annual results for 2016 on Feb. 22 in Leverkusen, Germany, Bayer CEO Werner Baumann said the group would not officially seek EU approval before complying with the Commission’s request for more information. The US Department of Justice also has requested additional information.

In Bayer’s view, “there is growing understanding for our strategy and the agreed acquisition of Monsanto,” Baumann said, pointing to the share price, which is now substantially higher than when the deal was announced. He stressed once again that the acquisition of Monsanto “will not come at the expense of our other businesses.” Some shareholders had said they feared the pharmaceuticals could come up short when investment monies were doled out.

To stem the acquisition, Bayer has developed a complex financing plan. Chief Financial Officer Johannes Dietsch said in Leverkusen that the German group will stick to its plan to raise $19 billion in equity before moving on to a rights and bond issue. “We want to do the equity first before we enter the bond markets,” he told analysts, adding that management needs more visibility as to the regulatory outlook for the deal.

In November 2016, Bayer completed the placement of €4 billion in mandatory convertible notes with institutional investors, excluding the pre-emptive rights of its own shareholders. The issue was described as the largest ever mandatory convertible bond for a European issuer and the largest European equity capital markets deal in 2016.

In talking to journalists and analysts, Bayer executives expressed confidence that the acquisition would pass all regulatory hurdles by the end of 2017. After what Bayer and Monsanto called a “productive meeting” with US President Donald Trump just prior to his inauguration last month, international media were abuzz with talk that with the two players’ commitment to spend $8 billion on R&D in the US the merger was assured of success, although observers noted that antitrust approval is not part of the president’s brief.

This week, the financial markets saw another sign they interpreted was one of confidence the deal would go ahead. Berkshire Hathaway, the investment vehicle of US billionaire Warren Buffett announced it had purchased 8 million Monsanto shares valued at more than $800 million in the 2016 fourth quarter, just after the proposed acquisition was announced in September.