Monsanto (MON) Stock Declines, Citigroup: Little Choice But to Accept Bayer Offer

Bayer and Monsanto today announced that they signed a definitive merger agreement under which Bayer will acquire Monsanto for a whopping $66 billion. The tie-up would form one of the world's largest agriculture conglomerates, with control over about a quarter of the world's seed and pesticide supplies.

The value of assets Bayer is willing to divest is to be revealed by next week, when details of the merger agreement become public, according to sources familiar with the deal. The companies expect the deal to close at the end of 2017.

Bayer's share price initially leapt on news of the deal but fell back as the afternoon wore on, gaining 0.3 percent to 93.55 euros. The purchase price follows months of haggling. That takes the shares to $104.75, an 18% gain since Bayer's first offer was announced, but less than half way to the $128 offer - suggesting a big doubt that regulators will approve it.

Bayer's share of the USA cotton seed market sits at 38.5 per cent, while Monsanto is 31.2 per cent, according to data compiled by the Konkurrenz Group. The combination also faces a public backlash in Germany over concerns about Monsanto's genetically modified seeds and weedkiller - both abhorred in Bayer's home country. In crop seeds and biotechnology, for example, the four biggest companies had a market share of 54 percent in 2009, the most recent data available, up more than double from 21 percent in 1994. To satisfy antitrust concerns, Monsanto agreed at the time to sell its Stoneville Pedigree Seed unit, which had 12 percent of USA cottonseed sales, to Bayer for $310 million. Currently, the top six agricultural input companies own 63 percent of the global seed market, 75 percent of the agricultural chemical market, and 95 percent of the trait acres for corn, soybeans, and cotton in the United States. The move toward agriculture comes amid increasing pressure for global drugmakers. Dow Chemicals (DOW) and DuPont (DD), which merged earlier this year, will command a 22% share, and Syngenta (SYT) will have a 25% share post-merger with ChemChina.

Syngenta, which now sits just above Bayer as the world's largest crop chemicals producer, was sold to state-owned ChemChina for $44 billion. Chemical makersDuPont and Dow are now joining forces, and earlier this week, thePotash Corporation of Saskatchewan merged with Agrium Inc, a large agriculture and fertilizer company. If these trio deals pass authoritarian congregate, the budding entities would successfully control more than 3 quarters of USA corn-seed sales and 70% of the world's pesticides.

Critics of these deals will point to food safety concerns and anti-competitive business practices that can harm consumers; proponents of these deals will assert their importance for maintaining healthy businesses.

Of course, it would be very possible to make the case that the larger sizes of these industries could translate into lower costs for consumers and greater innovation thanks to economies of scale, the lack of competition between firms caused by the domination of a few may well translate into higher prices for the consumer, and lower incomes for the smaller farms.

Seed makers have already laid off thousands of employees and cancelled some research projects. Regulators have also scrutinized deals which might be a threat to national security or support tax avoidance. And for that reason, it's certain to receive intense scrutiny by domestic and global regulators.

Bank of America, Credit Suisse and Rothschild & Co. advised Bayer on the transaction, while Morgan Stanley and Ducera Partners LLC acted for Monsanto.

According to Senator Bernie Sanders, this deal can be viewed as a threat to the Americans. "I'm guessing all over, because it's not just this merger", Gopalan said.