Monsanto takeover faces tough road

Bayer’s US$66 billion bid for the American company faces opposition among grower groups in Canada and the U.S.

CORRECTION – This story has been edited from its original format. This story contained proprietary information that was inadvertently provided to the Western Producer. That information has been removed.

Bayer’s takeover of Monsanto would create a near-monopoly player in the canola industry, drive up seed prices and stifle innovation, say farm groups and analysts.

The new entity would account for 65 percent of canola acres in Canada and 95 percent of the canola trait business.

That makes farmers anxious.

“Canola has grown and thrived and has been a benefactor of very vigorous innovation and hyper-competition in the high-tech area of seed development,” said Rick White, chief executive officer of the Canadian Canola Growers Association.

“It has served us very, very well, and we’re worried about a monopoly situation here where that incentive is maybe diminished.”

Bayer announced last week that it had reached an agreement to acquire Monsanto for US$66 billion. The deal is subject to Monsanto shareholder approval and regulatory approval in about 30 countries, including Canada.

White believes the Competition Bureau will force Bayer to divest some of its canola assets.

“The Competition Bureau looks very closely when market share concentration exceeds 35 percent,” he said.

Bayer said it is willing to undertake divestitures if required and refutes the notion that there will be reduced competition in the agriculture sector.

“We will only succeed with pricing and selling our products if our value proposition to our customers is better than that of our competitors and if we continue to innovate,” the company said in a document accompanying the merger announcement.

Richard Gray, professor of agricultural economics at the University of Saskatchewan, thinks it is pretty clear which line of canola the company would get rid of if forced to by the Competition Bureau.

“It’s more likely they would jettison the Roundup Ready trait, sell it to Pioneer Hybrid or somebody,” he said.

Liberty Link has more value because it is the highest yielding herbicide tolerant system on the market.

Gray said it is unlikely the Competition Bureau would allow Bayer to keep both canola systems because the company would be able to raise the price of both systems without losing market share.

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He agreed with White that the truly scary part of the merger for farmers is the impact it would have on innovation in the canola seed business.

“Right now there is certainly quite a bit of a race between InVigor varieties and Roundup Ready varieties in terms of genetic improvement,” he said.

“Why spend all that money if your market share isn’t going to improve? Why not just raise the price and be content?”

Ron Bonnett, president of the Canadian Federation of Agriculture, said farmers are also concerned about concentration in the pesticide business.

Bayer is the world’s second largest agrochemical company behind Syngenta with $10.1 billion in sales in 2015. Monsanto is a distant fifth with $4.3 billion in pesticide sales.

“They’re two big players in that as well, but I don’t think it’s quite as concentrated as it is in the seed business,” said Bonnett.

Monsanto vaults into the top spot with $14.4 billion in sales when seed and trait sales are included, Syngenta is second at $13.3 billion and Bayer is third with $11.5 billion in combined pesticide and seed sales.

Farm groups in the United States are also expressing concern about the merger. Members of the National Farmers Union were in Washington last week lobbying Congress to conduct hearings about all the pending mergers in the crop input sector.

In addition to Bayer and Monsanto, ChemChina is buying Syngenta, Dow and DuPont are merging and so are Potash Corp and Agrium.

“Consolidation of this magnitude cannot be the standard for agriculture, nor should we allow it to determine the landscape for our future,” NFU president Roger Johnson said in a news release.

“These megadeals are being made to benefit the corporate boardrooms at the expense of family farmers, ranchers, consumers and rural economies.”

The U.S. Senate judiciary committee is reviewing the trend of consolidation in agriculture.

White said the canola growers association does not plan to lobby politicians in Ottawa. Its sole focus will be providing input to the Competition Bureau.

“I’m not sure what the politicians could do, to be honest, when it comes to business transactions like this,” he said.

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In 2010, the Canadian government stopped the $40 billion sale of Potash Corp to BHP Billiton because it felt it would not provide a net benefit to the country.

White said it would be a stretch to come to the same conclusion about the Bayer-Monsanto merger.

Gray said one thing politicians can do is look at patent laws and other laws and figure out how to make it easier for generics to enter the market.

“Looking at other ways to introduce competition is going to be increasingly important,” he said.

Some people don’t think the merger will happen.

Jeremy Redenius, an investment analyst with Sanford C. Bernstein & Co., said there is a 50 percent chance of the deal being completed. Redenius believes the only way regulators will allow the deal to happen is if there is significant divestment.

“We estimate asset sales up to $1.2 billion from cotton and canola seeds, glufosinate herbicide and trait,” he said in a research note following the merger announcement.

Willow Street Investments believes antitrust regulators will block Bayer’s acquisition of Monsanto, and Monsanto’s investors appear to agree.

“We have never seen an acquisition announcement where the acquisition target’s shares dropped upon such announcement and continued to drop in the following days,” Willow Street said in its analysis published on the Seeking Alpha website.

Bayer has agreed to pay Monsanto $2 billion, or three percent of its offer price, if the deal falls through.

“We believe Bayer’s attempted acquisition of Monsanto represents corporate arrogance that it could actually be able to complete such acquisition, especially in the face of the already announced Dow-DuPont merger,” said Willow Street.

“Bayer’s arrogance will end up costing the company $2 billion and over one year in wasted energy and expense attempting to close such a deal.”

Bayer is confident it will get the necessary approvals and expects the deal to close by the end of 2017. Bayer and Monsanto will continue to operate as two independent businesses until that time.

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  • richard

    Let them all merge…..the big six becomes the big three….becomes in ten years the big zero as they all hit the inevitable wall of biological obsolescence……
    The threat to shareholders is not shrinking market share….its the shrinking gene pool…..the consequence being the cost of propping up weak monocultural germplasm with agritoxins and hyperbole is rapidly overtaking their market return…..

    • Harold

      The only thing more powerful than Law, is the collective reasoning of the majority, that prevents them from becoming involved with the law. In this case, to be not involved, means to actively oppose the merger. To become un-involved as you suggest,(“let them”) is to be involved as a party to the merger. (Silence is agreement)
      The majority will retain less power and given more liabilities after the merger is completed, than what is currently held. Who would wish this upon themselves?

      Government is, and has been, deeply involved in creating the laws that prevent the obsolescence of either Corporations and their Agencies.
      To assume that there can be “obsolescence” after a super-power is created, is to also assume that our government will soon suffer the same fate.

      In disrespect for ourselves, we need to value the opinions of government officials, Bayer and Monsanto, which is what we do so very well.