Bayer, in response to further market speculation and stakeholder inquiries, on Monday disclosed the contents of its private proposal to acquire Monsanto.
Bayer has made an all-cash offer to acquire all of the issued and outstanding shares of common stock of Monsanto for $122 per share or an aggregate value of $62 billion. The potential transaction, uniting Bayer Crop Science, the global number two crop protection player behind Syngenta, with Monsanto, the global leading seeds player, would create an agchems giant with 2015 sales of $26.53 billion, of which 46% were seeds.
The offer, based on Bayer’s written proposal to Monsanto on 10 May 2016, represents a premium of 37% over Monsanto’s closing share price of $89.03 on 9 May 2016; 36% over the three-month volume weighted average share price; and 33% over the six-month volume weighted average share price and Ebitda multiple of 15.8x in the last 12 months.
Bayer says the offer represents immediate and certain value at a substantial premium for Monsanto shareholders and “creates a leading integrated agriculture business with broad product portfolio and exceptional R&D pipeline to deliver valuable and innovative solutions for farmers”. It has a “compelling value-creation potential with core accretion by mid-single digit percentage in the first full year after closing and double-digit percentage thereafter,” the company says. The combination is expected to provide Bayer’s shareholders with accretion to core EPS by a mid-single-digit percentage in the first full year after closing and a double-digit percentage thereafter. Initially, Bayer expects annual earnings contributions from total synergies of approximately $1.5 billion after year three plus additional integrated offer benefits in future years.
“We have long respected Monsanto’s business and share their vision to create an integrated business that we believe is capable of generating substantial value for both companies’ shareholders,” said Werner Baumann, CEO of Bayer AG. “Together we would draw on the collective expertise of both companies to build a leading agriculture player with exceptional innovation capabilities to the benefit of farmers, consumers, our employees and the communities in which we operate.”
This transaction would bring together leading seeds & traits, crop protection, biologics, and digital farming platforms. Specifically, the combined business would benefit from Monsanto’s leadership in seeds & traits and Bayer’s broad crop protection product line across a comprehensive range of indications and crops. The combination would also be complementary from a geographic perspective, significantly expanding Bayer’s long-standing presence in the Americas and its position in Europe and Asia/Pacific. Customers of both companies would benefit from the broad product portfolio and the deep R&D pipeline could also be complementary from a geographic perspective, significantly expanding Bayer’s long-standing presence in the Americas and its position in Europe and Asia/Pacific.
“Bayer is committed to enabling farmers to sustainably produce enough healthy, safe and affordable food capable of feeding the world’s growing population,” said Liam Condon, member of the board of management of Bayer AG and head of the Crop Science division. “Faced with the complex challenge of operating in a resource-constrained world with increasing climate volatility, there is a clear need for more innovative solutions that advance the next generation of farming. By supporting farmers of all sizes on every continent, the combined business would be positioned as the partner of choice for truly integrated, superior solutions.”
Under the proposed transaction, the combined business would provide attractive opportunities for the employees of both companies and have its global seeds & traits and North American commercial headquarters in St. Louis, MI, its global crop protection and divisional crop science headquarters in Monheim, Germany, and an important presence in Durham, NC, as well as many other locations throughout the United States and around the world. Digital Farming for the combined business would be based near San Francisco.
Bayer says it is highly confident in its ability to finance the transaction based on advanced discussions with and support from its financing banks, BofA Merrill Lynch and Credit Suisse. The offer is not subject to a financing condition and the company intends to finance the transaction with a combination of debt and equity. The expected equity portion represents approximately 25% of the transaction’s enterprise value and is expected to be raised primarily via a rights offering. The strong cash flow generation of the combined business as well as Bayer’s track record of disciplined deleveraging after large acquisitions would enable rapid deleveraging post-acquisition, the company says. This is in line with Bayer’s target of an investment-grade rating immediately after closing of the transaction and its commitment to the single ‘A’ credit rating category in the long term. Bayer says it has a successful track record of working with global authorities to secure the necessary regulatory approvals and has extensive experience integrating acquisitions from a business, geographic, and cultural perspective.
Bayer’s board of management and supervisory board unanimously approved the proposal and are fully committed to pursuing the transaction. Bayer is prepared to proceed immediately to due diligence and negotiations and to quickly agree to a transaction. The transaction will be subject to customary closing conditions.
The deal would be the latest in a major consolidation of the global agchems industry, which earlier this year saw ChemChina (Beijing) agreeing to acquire Syngenta (Basel), the global leading agchems firm for $43.3 billion and the earlier announced plan to combine the Dow and DuPont agchems operations.
BofA Merrill Lynch and Credit Suisse are acting as lead financial advisors to Bayer and support the financing of the transaction; Rothschild has been retained as an additional financial advisor to Bayer. Bayer’s legal advisors are Sullivan & Cromwell LLP (M&A) and Allen & Overy LLP (Financing).
By Natasha Alperowicz
Source: Chemical Week
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