The Justice Department Is Going to Let Bayer Buy Monsanto. Here’s Why It Matters
The U.S. Justice Department has just given Bayer permission to buy Monsanto in a $62.5 billion deal.
The approval (with some conditions) was the last big hurdle for the deal, which has been in the works since May 2016. DOJ approval follows European Union approval in March and a “productive” meeting between Bayer and President Trump in January. It’s the largest all-cash buy-out on record and the largest deal ever by a German company.
But not everyone is over the moon about the tie up that will let one company control more than a quarter of the world’s seeds and pesticides.
Here’s what you need to know:
1. What’s the Deal?
In May 2016, Bayer made an unsolicited offer to buy Monsanto at $122 a share, or about $66 billion. (The deal is now valued at $62.5 billion.) Bayer is a German drug and chemical maker; Monsanto is an agricultural juggernaut based in St. Louis, Mo. Together, they represent the pinnacle of data-driven industrial agriculture, which the companies say will be necessary to feed a planet that hosts 10 billion people. Werner Baumann, the CEO of Bayer, and Hugh Grant, Chairman and CEO of Monsanto, emphasized their companies’ ability to invest more in innovation once joined, pledging to spend $16 billion on research and development worldwide over six years. However, Business Insider points out that this is only a total of $500 million more than the companies are spending on R&D right now.
2. What Did DOJ Approve?
With such a big tie-up inevitably comes anti-trust concerns. Although Bayer and Monsanto are ostensibly function in different sectors, there is some crossover between their products. To satisfy the DOJ, Bayer will sell off some of its assets to German competitor BASF before the merger. These include the company’s soybean and cottonseed businesses as well as its glufosinate weedkiller, which is a direct competitor to Roundup, a central element of Monsanto’s business.
3. Why Are Farmers So Worried?
For all Baumann and Grant’s bluster about innovation and feeding the world, many farmers worry that this merger is motivated by profit alone—which will be much easier to make after the tie-up. Mark Connelly, an agriculture analyst, told Business Insider, “These companies want to make more money, they want to raise prices. No company in this industry needs these deals in order to innovate.” Moreover, research from the Farmers Business Network shows a positive correlation between a company’s market share and its seed price. Market share is also an indicator of yield, but the gains taper off quickly. If this pattern holds, farmers could be paying a whole lot more money for not much more yield.
4. What Will It Mean for Consumers?
If farmers’ fears come to fruition, consumers could see prices go up not only on agricultural products, but also on the umpteen products that hide corn and soybean inputs such as gas. The Bayer-Monsanto deal is big enough on its own to create cause for concern. It’s even more worrying in the wake of the ChemChina-Syngenta takeover and Dow Chemical’s merger with DuPont.