The agritech world got a lot bigger this week when German chemical giant Bayer inked an agreement to acquire Monsanto for $66 billion in cash. The 2 companies had been bickering for months, and this was the 3rd refurbished offer. In the end, Bayer agreed to pay $128 per share, up from the company’s previous offer of $127.50. [1]
The agreement makes it the largest all-cash deal on record.
Markus Manns of Union Investment, one of Bayer’s top 12 investors, said:
“Bayer’s competitors are merging, so not doing this deal would mean having a competitive disadvantage.”
Details of the Merger
Among the terms included in the merger is a $2 billion breakup fee that Bayer would pay to Monsanto should U.S. and/or European anti-trust concerns cause the transaction to fall through. Analysts say the proposed merger faces will likely face an intense and protracted regulatory process in the U.S., Canada, Brazil, and the European Union (EU). [2]
Monsanto CEO Hugh Grant said the companies will need to file in about 30 jurisdictions for the merger.
On September 13, Bernstein Research analysts said they only saw a 50% chance of the proposed merger winning regulatory clearance, though a survey among investors put the likelihood at 70%. [1]
What a Merger Would Mean for Food
Bayer’s acquisition of Monsanto will give the company more than 1/4 of the world market for seeds and pesticides. That means less industry competition, higher seed prices, and as a result, higher food prices. Let me break it down a bit.
Bayer seeks to combine its crop chemicals business – the world’s second-largest behind Syngenta AG – with Monsanto’s seed business to make it the go-to place for farmers. Everything they need would be in 1 place.
But because Bayer will be a one-stop shop, they will have the power to sell seeds at insanely high prices – ones that would be burdensome to many farmers, who are already struggling.
John Colley, a professor at Warwick Business School, said:
“Bayer’s acquisition of ‘Frankenstein’ crop producer Monsanto could be a horror story for both Bayer and its customers: the farmers. The farmers will lose out as product ranges are rationalized and attempts are made to increase prices.” [3]
The farmers have to make up for the higher costs somehow, so they will have to slap a bigger price tag on their crops.
Read: Farmers Reject GM Seeds, Citing High Costs and Few Benefits
Professor Radhakrishnan Gopalan, a professor at the Olin School of Business at Washington University in St. Louis, explained:
“[Food] will definitely get more expensive. I’m guessing all over, because it’s not just this merger. Any consolidation is not good for consumers.”
That’s right, the industry is about to shrink even more.
U.S. chemical giants Dow Chemical and DuPont plan to merge and may later transform their respective seeds and crop chemicals operations into a major agribusiness. Canadian fertilizer producers Potash Corp of Saskatchewan Inc and Agrium Inc. announced September 12 that they were also planning to merge. [1]
Already, European regulators have indicated that they will keep a watchful eye on Bayer’s acquisition of Monsanto for any sign of anti-trust concerns. [3]
Said Megan Westgate, director of the Non-GMO Project:
“This deal is a disturbing step in the corporate consolidation of our global food supply. Monsanto owns approximately a quarter of the world’s seed supply and Bayer is one of the world’s top 10 chemical companies.”
She added:
“GMO crops don’t offer any consumer benefits, and they pose a lot of risks. The public is increasingly demanding food that has not been genetically engineered or sprayed with chemicals.”
Food activists like Westgate worry that the mergers will mean even more GMO crops in the U.S., where 75% of conventional processed foods are genetically modified. According to Consumer Reports, 72% of Americans try to avoid buying them when they shop.
Read: Record US Farmers Switched to Non-GMO Crops in 2015
Filmmaker Daryl Wein, who directed “Consumed,” a dramatic thriller that explores the world of GMOs, said:
“This new mega corporation could now own one-fourth of the combined global market for seeds and pesticides. When a company verges this close to a monopoly of our food system, alarm bells should ring out all around the world.”
Sources:
[1] Reuters
[2] Fox Business
[3] Business Insider