(adds details on acquisition from paragraph 14)
LONDON (ICIS)--Germany's chemical major Bayer said on Wednesday US agrochemicals major Monsanto has agreed to be acquired for $66bn.
The proposed acquisition price represents a 44% premium over Monsanto's shares closing price 9 May, when the German major made its first proposal to acquire the US company.
"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.
"We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration," added Hugh Grant, Monsanto's CEO.
The $66bn price tag corresponds to $128 per share of Monsanto, close to Bayer’s most recent proposal on 6 September at $127.50/share.
Bayer forecasts annual synergies between the two majors of $1.5bn per year after the third year of the acquisition’s completion.
Subject to regulatory approvals, the management boards of both firms have agreed to go ahead with an acquisition about which Bayer’s stakeholders were reluctant at first, according to analysts.
“Monsanto’s board of directors, Bayer’s board of management and Bayer’s supervisory board have unanimously approved the agreement,” said Bayer.
Bayer said it will finance the transaction with both debt and equity. Around $19bn will be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights.
Meanwhile, global major banks BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan have committed bridge financing for $57bn.
“Bayer has a proven track record of disciplined deleveraging after large acquisitions and believes that the strong cash flows of the combined business will contribute to improving its financial profile,” said the German firm.
"Bayer targets an investment grade credit rating post-closing and is committed to the single A credit rating category over the long-term.”
Bayer's shares were advancing 2%, compared to their close on 13 September, to €95.36 by 12:30 London time.
Bayer and Monsanto said the headquarters for the resulting Seeds & Traits division, as well as for the North American commercial operations, will be based at Monsnato’s current headquarters in St Louis, Missouri, while the headquarters for the Crop Protection and overall Crop Science operations will be at Bayer’s Monheim offices in Germany, as well as a strong presence in Durham, North Carolina.
Digital farming activities for the two businesses will be based in San Francisco.
The two companies said they expect to close the transaction by the end of 2017, which is still subject to the approval of Monsanto’s shareholders.
In addition, Bayer said it has committed to a $2bn reverse antitrust break fee, which would be payable in case antitrust authorities denied approval for the deal to go ahead.
The high break fee would reaffirm the company's confidence that it will obtain the necessary regulatory approvals, Bayer said..
US bank BofA Merrill Lynch and Swiss Credit Suisse are acting as lead financial advisors and structuring banks to Bayer in addition to providing committed financing for the transaction, said the companies.
Rothschild has been retained as an additional financial advisor to Bayer. Bayer’s legal advisors are Sullivan & Cromwell LLP (mergers and acquisitions) and Allen & Overy LLP (financing), while Morgan Stanley and Ducera Partners are acting as financial advisors to Monsnato, .and Wachtell, Lipton, Rosen & Katz is acting as legal advisor to the US firm.
Bayer and Monsanto said their research and development (R&D) would stand at €2.5bn/year, a key figure as analysts have pointed out agrochemicals companies are struggling to get new technologies and products to keep ahead in the industry.
“The agriculture industry is at the heart of one of the greatest challenges of our time: how to feed an additional 3bn people in the world by 2050 in an environmentally sustainable way,” said Liam Condon, head of Bayer’s Crop Science division.
“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.”Pictured above: Bayer and Monsanto's CEOs Werner Baumann and Hugh Grant.