Price isn’t the only disagreement separating Bayer the eager suitor from Monsanto the reluctant target.
The two companies also appear to differ on how their combination would be viewed by antitrust regulators around the world. Bayer’s chief executive, Werner Baumann, told reporters Monday that he saw no regulatory problems for a deal. Bayer’s head of crop science, Liam Condon, added, “It is full confidence here in our ability to consummate the transaction from an antitrust point of view.”
Monsanto isn’t convinced. When he rejected Bayer’s offer on Tuesday, Monsanto CEO Hugh Grant raised two objections: The $62 billion price was too low, and Bayer was being too glib about its ability to push the deal through. The proposal “does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks,” Grant said.
Joe Terril, president of investment firm Terril & Co. in Sunset Hills, reads Grant’s statement as a request for a breakup fee. “I would imagine they’re asking for a pretty good breakup fee, maybe more than Bayer is willing to give,” Terril said.
Such fees cost nothing if a deal goes smoothly, but several would-be sellers have collected them. This month, Halliburton paid $3.5 billion to oil-services rival Baker Hughes after antitrust problems wrecked their merger. AT&T paid $4 billion in 2011 after regulators nixed its purchase of T-Mobile.
If Bayer’s executives really have no doubt about winning regulatory approval, they should be willing to risk a few billion dollars to ease Monsanto’s concerns. Antitrust experts, though, think the German company is glossing over some very real issues.
For starters, Monsanto and Bayer have the first- and second-ranked cotton seed brands in the U.S. Bayer acquired its cotton business from Monsanto in 2007 as part of a previous antitrust case. If the Justice Department wouldn’t let Monsanto own both top brands then, it probably won’t let Bayer own them now.
Another concern is that Bayer’s Liberty herbicide and LibertyLink corn, soybean and canola seeds are the most direct competitors to Monsanto’s Roundup and Roundup Ready. In both systems, the seeds are genetically modified so they can survive application of the company’s weedkiller.
“One of the worst things you could do is to link Liberty and Roundup in the same company,” said Peter Carstensen, a law professor at the University of Wisconsin and leading agricultural antitrust expert. “There’s no incentive for somebody to develop a third alternative.”
At the very least, then, regulators may force Bayer to sell its cotton business, a herbicide-seed pairing and a line of vegetable seeds, another business where the two companies would dominate.
No amount of divestitures, however, can address a broader concern about growing agribusiness concentration. Bayer’s offer comes on the heels of two other megadeals: a merger between DuPont and Dow Chemical and ChemChina’s acquisition of Syngenta.
In crop chemicals, Bayer and Monsanto control 32 percent of the world market. The top four companies — Bayer-Monsanto, Syngenta, Dow-DuPont and BASF — would control nearly 90 percent.
That means regulators can’t view each deal in isolation. “These are irreversible consolidations, which is why one hopes the government will look carefully at the big picture,” Carstensen says.
Monsanto is right to insist on a breakup fee. The regulatory risks are real, and the time and attention spent on a busted merger would be costly. If Bayer truly sees an easy path to approval, it’s time to back that confidence with cash.