CEO Daily: Thursday, May 19
Good morning. German drug and chemical maker Bayer has made an unsolicited offer to buy agricultural giant Monsanto. I asked Monsanto CEO Hugh Grant about the merger rumors on Tuesday, when he visited us at the Brainstorm E conference in California. He refused to discuss the Bayer deal in particular. But what he did say makes clear why these merger talks are happening now.
Grant believes agriculture is very much a part of the new industrial revolution, and the successful company of the future will need to use data about soil and weather to offer farmers precise and targeted advice about the seeds and chemicals they need to use. The company of the future won’t just be selling seeds and chemicals, but seeds and chemicals and data as a service. That’s why Monsanto acquired the Climate Company; that’s why it attempted, unsuccessfully, to buy Swiss-based chemical company Syngenta; and that’s why Bayer is now after Monsanto.
“Its funny because ag is kind of slow moving until you are up close to it, and then it’s suddenly very dynamic,” Grant told me. “The key in this is how to provide better information to help in those 40 interlocked decisions that inexorably a grower is going to make every single year. There is a future business opportunity – and it is getting much clearer – in how you do that.”
Critics are certain to cite the antitrust implications of creating a giant new company with $67 billion in sales. But Grant sees this integrated approach as critical to feeding a world that’s careening toward 10 billion people with middle class appetites.
“There is no new dirt,” he said. “We need to get much smarter societally about how we farm.”
By the way, Dow CEO Andrew Liveris, also at Brainstorm E, said similar logic is behind his plans to combine Dow with DuPont, and then spin off three companies – one of which will provide integrated seed and chemical services to farmers.
• Egyptair Disaster
An Airbus operated by EgyptAir with 69 passengers and crew on board has disappeared over the Mediterranean en route from Paris to Cairo. The cause of the crash is still unknown, but it happened in good weather, before the plane was due to descend, and without it sending any distress signals. Speculation about a possible terror attack is inevitable. The three factors reduce the likelihood of technical failure or pilot error, and are more consistent with a sudden catastrophic event like a bomb blast. Both France and Egypt have been the subject of terror attacks by Islamists in the last six months, and any suggestion of vulnerability in European airport security could hit the economy badly. Air France and others have already warned about losses from the November attacks in Paris, and U.K. travel agent Thomas Cook said in a quarterly update Thursday that holiday bookings are down 5% on last year. BBC
• The Fed's Not Dead
The Federal Reserve will take a good hard look at raising interest rates in June after all, according to the minutes of the latest meeting of its Federal Open Markets Committee. The news surprised financial markets, which were betting that a soft first quarter for GDP and inflation, combined with the prospect of market volatility around the U.K.’s E.U. referendum on June 23, would stay the Fed's hand. But if the Fed is seriously thinking about raising rates in June, it needs to give markets as much time as possible to get used to the idea. The dollar rose, as did bond yields, while stock and commodities (especially gold) fell. The dollar, which had lost nearly 7% against other major currencies between February and the start of this month, is now back heading firmly higher. WSJ, subscription required
• Parlez-vous français, Netflix?
Netflix and Amazon could be forced to include at least 20% local content in their TV and movie streaming catalogues in the European Union, according to a draft of new regulations for the E.U.’s broadcasting rules unearthed by the Financial Times. The new rules are aimed at making sure that new entrants into the market are subject to the same obligations as existing broadcasters on supporting European content producers. That will include financial contributions to producers in countries where such levies are already placed on national broadcasters. The new rules are consistent with a long tradition of protectionism in the media industry, born out of Europe’s polyglot history and (mainly French) cultural snobbery. Netflix is resisting the proposals, according to its contribution to the European Commission’s ongoing consultation. But it has its work cut out: the Commission estimates that existing broadcasters invest around 20% of their turnover in new productions, compared to barely 1% for streaming services. Fortune
• An Oil Services Merger That May Fly
Cue the wailing and gnashing of teeth from Schlumberger, Baker Hughes and Halliburton. After their efforts to survive the oil crash by slimming down and merging were shot down by antitrust regulators, here comes a deal that will see two smaller competitors merge into one serious one. Houston-based FMC Technologies and France’s Technip aim to combine to form an oil services company worth $13 billion. Its annual revenue of around $20 billion would make it larger than Baker Hughes (if regulators don’t insist on asset disposals). The two companies think they can cut costs by $400 million a year to survive in an industry which has cancelled over $250 billion in investment since crude prices started to tumble 18 months ago. In what is priced as a merger of near-equals, FMC’s president and chief operating officer Doug Pferdehirt will become CEO and Technip’s chairman and CEO Thierry Pilenko will become executive chairman. WSJ, subscription required
Around the Water Cooler
• Tesla's Stock Offering
Tesla confirmed that it intends to sell $1.4 billion in new stock to help finance its first, transformational venture into mass production. Founder Elon Musk is also selling a big chunk of stock to cover a hefty tax bill on exercising stock options that were granted over the last seven years, but he was at pains to stress that he’s not cashing out at all. Indeed, his overall holding in the company will rise as a result (thanks to a $300 million loan from Morgan Stanley). The news had been expected since Musk announced he would speed up plans to bring the Model 3, Tesla’s first mass-market vehicle, to market. For that he needs new production facilities, not least his planned Gigafactory for lithium-ion batteries in Nevada. The company’s shares rose in relief that the volume of stock hitting the market was no bigger. Fortune
• Theranos Voids Edison Test Results
Theranos has voided two years of results from its Edison blood-testing devices, according to The Wall Street Journal. The machines were at the heart of the company’s claims to have revolutionized blood testing, which enabled it to raise money at elevated valuations from investors in the past. However, according to the WSJ’s sources, it has now sent tens of thousands of corrected blood-test reports to doctors and patients, ‘voiding some results and revising others.’ The company stopped using the devices in June last year. Theranos is scrambling to take as much corrective action as possible to avoid being shut down altogether by regulators: last week, it announced the departure of its chief operating officer Sunny Balwani and the hiring of three new directors. The Centers for Medicare and Medicaid Services is expected to announce soon what sanctions it will impose on the company. WSJ, subscription required
• Activists Get Active in DC
A group of hedge funds have formed a new lobbying arm, called the Council for Investor Rights and Corporate Accountability, to promote the benefits of shareholder activism across the U.S. economy, as U.S. politicians turn up the heat on activist investors. The group's backers reportedly include William Ackman of Pershing Square, Carl Icahn, Daniel Loeb of Third Point, Paul Singer of Elliott Associates and Barry Rosenstein of Jana Partners. Some of those have attracted the attention of politicians, including Democratic presidential candidates Hilary Clinton and Bernie Sanders during the presidential campaign. Fortune
• Lerner Exits Villa, Nike Pushes Adidas out of Chelsea
Ah, sport. Even the most lovable fairytale winners need a loser, and that loser is, in the case of the English Premier League, Randy Lerner. Lerner, who inherited the Cleveland Browns NFL franchise from his father and ran it for 10 years without much success, is now selling out of just-demoted Aston Villa, which he bought in 2006 for around $100 million. The buyer (as usual, these days) is a Chinese-led consortium. Such has been the inflation of English soccer values in the last decade that he may still make a profit on his investment. Reports suggest a valuation of nearly $300 million, although the structure of the deal is far from clear. In other ‘has-the-world-gone-completely-mad?’ news from England this week, Nike has broken up Chelsea’s sponsorship deal with Adidas by doubling the 30 million pounds ($44 million) the Germans were paying the London club each year. Adidas will get nearly $60 million in compensation. Daily Telegraph, Fortune