The new Bayer will be an “agricultural powerhouse.” That sounds good, but what does it mean? What’s changing for Bayer and how can I, as an investor, benefit?
Understanding that Bayer (OTCMKTS: $BAYRY) is a life sciences, pharmaceutical, and agricultural chemicals company, how much impact will Monsanto’s agtech portfolio have on Bayer’s revenue streams? And I mean in terms of agribusiness sector diversification, not dollars of revenue (this is a $66 billion deal… it’s massive). Pre-merger, about 30% of Bayer’s revenues come from it’s crop division.
Bayer in the U.S. is known largely for its pharmaceuticals, with scientists who developed modern Aspirin and Alka-Seltzer. But this deal would pivot the 117,000-employee company more towards its farm-targeting business in agriculture chemicals, crop supplies and compounds that kill bugs and weeds. Meanwhile, Monsanto is the world’s largest supplier of genetically modified seeds, which now dominate American farming but are still a major source of environmental protests in Europe and abroad. The 20,000-employee company is also a major VC player in agtech start-ups and they’ve acquired an interesting portfolio that includes Climate Corp, which is now making it’s own VC investments.
As you can see, the movers and shakers at Bayer feel that shifting towards agricultural tech is the long-term money-maker. Based on climate and demographic trends, this seems a safe assumption. In any event, they pay a decent dividend to incentivize investors to be patient.
This is a merger that “could reshape the world’s food supply.”
“The whole agricultural industry around the world is basically going through a transformation. It’s the last big industry in the world to be digitized,” said Robb Fraley, Monsanto’s chief technology officer. “This allows us to make more investments, have more capabilities and build better products for farmers, that they can use to grow crops with higher yields … and farm better, farm smarter.” Regarding the agribusiness portfolio: “We have very, very little overlap. The whole strategic rationale of the deal is built around encouraging more innovation.” Liam Condon, Head of Bayer’s Crop Science Division
Creating a global leader in agriculture…
Benefits of the Bayer and Monsanto merger: Notes from “Advancing Together”
- A new global leader in ~€85bn Agriculture industry, an attractive long-term growth industry driven by innovation and unmet scientific need.
- Realizes a shared vision of integrated agricultural offerings, delivering enhanced solutions for growers and creates a leading innovation engine for the next generation of farming.
- Combination creates an industry leader in Crop Science bringing together two different, but highly complementary businesses.
- The combined company will benefit from Monsanto’s leadership in Seeds & Traits and Climate Corporation platform and Bayer’s broad Crop Protection product line across a comprehensive range of indications and crops in all key geographies.
- Growers will benefit from a broad set of solutions to meet their current and future needs, including enhanced solutions in seeds and traits, digital agriculture, and crop protection.
- Brings together both companies’ leading innovation capabilities and R&D technology platforms, with an annual pro-forma R&D budget of approximately EUR 2.5 billion.
- Reinforces Bayer’s leadership position as a global innovation-driven Life Science company with leadership positions in its core segments; remains committed to its strong culture of innovation, sustainability and social responsibility.
- Significant value creation with expected annual synergies of approximately USD 1.5 billion after year three; plus additional synergies from integrated solutions in future years.
- Bayer shareholders expected to benefit from accretion to core EPS in the first full year after closing and double-digit percentage accretion in the third full year.
With President Trump in the White House it seems more certain that this merger will go through and Bayer will not lose it’s $2 billion “security deposit.” My plan for investing in this company is to create an initial position now, and then re-invest post-merger. If the merger falls through for some reason then I’ll have a great opportunity to buy $BAYRY at a discount. Let me know what your expectations are for Bayer stock and what prices you’re watching for investment into the ADR!
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