Bayer Makes Takeover Approach to Monsanto

Bayer has approached Monsanto about a takeover that would fuse two of the world's largest suppliers of crop seeds and pesticides, according to people familiar with the matter.

Details of the offer couldn't be learned and it is unclear whether Monsanto will be receptive to it. Should there be a deal it could be valued at more than $42 billion, which is Monsanto's current market capitalization.

Should the bid succeed, a combination of the companies could boast $67 billion in annual sales and create the world's largest seed and crop-chemical company. A successful deal would ratchet up consolidation in the agricultural sector, after rivals Dow Chemical Co., DuPont Co. and Syngenta AG struck their own deals over the past six months.

But there is no guarantee regulators would bless such a tie-up, and if Monsanto isn't on board, winning such approval could be an even greater challenge. Indeed, people familiar with the matter have questioned whether Monsanto would be interested in such a deal.

Absorbing St. Louis-based Monsanto, the world's top seed company in terms of sales, would push Bayer far more deeply into agriculture, which currently accounts for about 22% of the German company's business. Monsanto's $15 billion in seed and herbicide sales could make agriculture about 40% of the combined entity's business, with the rest coming from pharmaceuticals and consumer health products.

The approach comes as the agricultural sector faces heavy pressure after three years of sliding crop prices, which slashed U.S. farmers' income to the lowest level in over a decade and forced companies to cut prices on seeds while scaling back research and laying off staff. Monsanto in May cut its profit forecast for the year and is eliminating about 16% of its employees.

Folding Monsanto's world-leading seed franchise and its trademark Roundup herbicide business into Bayer would create a company that could market products ranging from Aspirin pain-relief pills to crop genetics that enable plants to withstand bugs and weedkillers. The combination would sell about 28% of the world's pesticides and about 36% of U.S. corn seeds and 28% of soybean seeds, according to Morgan Stanley estimates.

The companies' agricultural portfolios are geographically complementary, with North America as Monsanto's largest market and Bayer having a greater presence in Europe and Asia. Its broader portfolio of chemicals to kill crop-damaging bugs and weeds can be sold across more countries than the 28 that permit genetically modified crops, a business where global growth has slowed.

As crop prices have fallen around the world and biotech seeds have neared a point of saturation in major markets where they are allowed, such as the U.S. and Brazil, world-wide acreage of genetically engineered crops edged 1% lower last year, the first such decline on record, according to the International Service for the Acquisition of Agri-Biotech Applications.

Bayer has no significant business in corn and soybean seeds, the two largest U.S. crops in terms of acreage, though overlap in the companies' vegetable and cotton seed units may need to be addressed through divestitures, analysts said after Bloomberg reported last week that the German company was considering the approach.

Merging the businesses could require Bayer to divest itself of its glufosinate herbicide business, which competes with Monsanto's Roundup, as well as related seed genes that allow corn, cotton and soybean seeds to withstand the herbicide, analysts said.

Monsanto sparked the deal fervor last year with an unsuccessful, $46 billion bid for Swiss rival Syngenta AG, which ultimately agreed to sell itself to China National Chemical Corp., while Dow Chemical Co. and DuPont Co. unveiled their own merger. That left the other major global seed and pesticide players -- Monsanto, Bayer and BASF -- to potentially face enlarged rivals, and entertain a narrower range of potential partners.

Hugh Grant, Monsanto's chairman and chief executive, said last month that his company no longer planned to pursue big deals to grow, instead focusing on its core business and weighing partnerships or joint ventures to develop a broader pesticide business. Monsanto's currency for deals has also waned. The company's share price had declined 8.3% for the year before reports last week that bidders, including Bayer, were considering an offer for the biotech seed giant.

A combination of the two companies could achieve Monsanto's goal in the Syngenta deal: adding a broad portfolio of pesticides and deep research capabilities to match Monsanto's prowess in breeding and engineering high-yielding seeds paired with new and more powerful crop sprays. In pitching the Syngenta deal to investors and farmers, Monsanto touted the potential to reduce research spending by combining functions and the potential to bring new products more quickly to farm fields.

Another seed-sector merger would also test farmers' appetite for consolidation. Monsanto's bid for Syngenta and the Dow-DuPont merger plan have heightened concerns over competition in the U.S. Farm Belt, with a shrinking number of firms overseeing greater swaths of the seed and pesticide business. The National Farmers Union and other groups raised concerns that the mergers could yield higher prices and fewer choices at grain elevators and crop supply stores where farmers purchase their seeds and sprays.