Aspirin inventor gives its shareholders a real head-ache

Bayer Monsanto – logical but somewhat scary

Only months after Monsanto aborted its attempt to capture Syngenta, it now finds itself the target of Bayer’s latest voracious expansion plan. The USD 62 billion offered by Bayer are apparently not enough to convince Monsanto’s leaders, in spite of providing a premium of more than 20% over the company’s current share price. And so an escalation begins here with a new bid for USD 66 billion and probably even more in the coming weeks …

From a purely financial point of view, one justifiable reason for failing to be enthused by Bayer’s offer is that an acquisition of this magnitude would stretch the company’s finances to their very limits, and Monsanto who have experienced their own difficulties in recent months are probably not inspired by the idea of joining a group that might end up gasping for cash under a mountain of debt… The fact that Bayer’s shares dropped by a significant 11% upon announcing the intended acquisition if proof that the financial community does not yet see eye to eye with the company’s CEO.

For the regulators, this will be a tough nut to crack. There is not much duplication between Bayer and Monsanto, but instead much complementarity. Furthermore, pooling the two companies’ research capability could potentially lead to significant advances in agro-chemical technology. Some may argue this is a good thing and that this acquisition should be given the regulators’ blessing.  This might make a lot of sense if it were not for the fact that a united Bayer and Monsanto behemoth would have end-to-end control of what lands in our dinner plate by replacing much of what Mother Nature has provided to us with a subset of variants each protected by intellectual property rights…  For Bayer’s new CEO Werner Baumann, this is the only possible way of feeding the world’s fast growing population.  In other words, the hunger justifies the means and Bayer-Monsanto are proposing to save the world.

If economic considerations are the sole basis on which the regulators can rule, those opposed to Bayer’s acquisition will need to prove that allowing the bulk of the world’s agricultural production in the hands of just three large corporations will before long be detrimental to the interests of farmers and, ultimately to ours – the consumers. And they will be countered by those who believe that joining forces on research and development can produce a wealth of truly transformational products and services that will revolutionize worldwide agriculture and mark the dawn of an era of almost infinite abundance.

Real business case or mere “arrogant empire-building”

It will have taken new CEO Werner Baumann (R) less than one month to create shockwaves after taking over from Marijn Dekkers

It will have taken new CEO Werner Baumann (R) less than one month to create shockwaves after taking over from Marijn Dekkers

In the 1960’s and early 70’s the big trend was for companies to cluster into conglomerates to spread risk, and this failed to boost their value as everyone soon realised  – surprise surprise –  that investors can spread risk by diversifying their portfolio in any way they wish and therefore see no advantage in being prescribed a particular pre-set mix of risks.

For those investors (and there are many of them) who were attracted to Bayer by that company’s formidable presence on the pharmaceuticals scene, with the flexibility and financial means to make targeted further acquisitions in that field, seeing Bayer lose focus and the combined business putting more emphasis on agricultural rather than pharmaceutical products will certainly be a source of concern. This, together with the financial risk associated with the high debt gearing Bayer would have to bear as a result of the acquisition, may have triggered the abrupt loss in Bayer’s share price which prompted the fund manager of Henderson Global Investors, the company’s 15th largest shareholder, to declare to Reuters about Bayer’s new CEO: “The fine work of his predecessor has been ripped up. I had hoped that the days of such arrogant empire-building and ignorance of the actual owners of the business were at an end”. Could all of this just be some amazing ego trip masterminded by Mr Baumann?

Will ethics and reputation influence the outcome?

Source : GreenMedInfo

Source : GreenMedInfo

Commonly known in the broader public for household names such as Aspirin and Alka-Seltzer, Bayer have nonetheless come under the fire of public opinion for using imidacloprid  – a chemical associated with the worldwide decline in the population of bees – in a number of its insecticide brands such as Confidor®, Gaucho®, Hombre®, Movento®, Poncho® and Zorro®, all of which are presented as “breakthrough solutions” on Bayer’s crop science websites. Bayer would not be the only pharmaceutical company to have a few controversial products in its range – but that is where many of their shareholders draw the line, and possibly many of the company’s managers and staff too.

Monsanto, on the other hand, has become notorious for regularly hitting the headlines and triggering mass protests against its MGO crops and its stronghold over farmers who tie themselves into endless subscription schemes to sow their crops. As individuals, we are free to form our own opinion on that business model, but the fact remains that instead of increasing the variety of the food made available to us, the generalization of MGO crops has resulted in the opposite outcome: Monsanto currently provide the seed for 90% of the USA’s soya beans, whereas almost 40 variety of soya beans were used in that country two decades ago. That path is being followed by corn, wheat and other staple foods. Notwithstanding culinary regrets at the loss in variety of flavours and textures, the real danger of such lack of diversity resides in the heightened risk of disease or contamination that can spread like wild fire and could ruin crops on a continental or global scale, with potentially disastrous humanitarian and political consequences.

Anti GMO campaign run by France Nature Environnement

Anti GMO campaign run by France Nature Environnement

North European countries, and Germany at the heart of them, are probably those in the world where ecology, recycling, sustainability and renewable energy are high on the list of priorities of the average citizen. It will be interesting to see whether Germany public opinion, and the votes of German shareholders, will be suffice to prevent Mr Werner Baumann from combining Bayer, an icon of Germany’s pharma and chemical industry, with a company which so far has stubbornly pursued an agenda that is at odds with large sections of the world’s population.

About Paul Siegenthaler

Paul J Siegenthaler has helped numerous merging or acquired companies to integrate successfully, and has driven major business transformation programmes across Western Europe and North America, ensuring they deliver the business case their shareholders had been promised. Following a Masters degree in Economics from H.E.C. Lausanne and an MBA at London Business School, Paul spent the first 17 years of his career as Managing Director reshaping the companies acquired by an international group, before focusing solely on the business integration of broad scale international mergers and acquisitions, across a number industries.

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