AnalyzingMonsanto’s Bid Takeover by Bayer
AnalyzingMonsanto’s Bid Takeover by Bayer
Justificationof the 37% purchase premium
A purchase premium of 37% lies within the expected value, but giventhe current situation and the nature of the takeover, the premium mayprove costly and unjustified. It is imperative to note that thenegotiated price might even be higher than $62 billion because othertakeover costs and legal hurdles will arise. In fact, analystscontend argue that the value is a substantial stretch and onlypresents a great opportunity to Monsanto (Alessi, 2016). Currently,Bayer has a net debt of roughly US$20 billion, but the takeover willincrease the debt to roughly US$42 billion, which might curtail thefirm’s strategic flexibility (Alessi, 2016). Financing and costswill prove a challenge to Bayer, which means the purchase premium isshort of the firm’s expectations. Moreover, Bayer’s investorsmight not appreciate the shift while decreased sales of biotech cropsand insistence from environmental groups that biotech crops may harmthe ecology add to the challenges associated with the takeover. Onthe other hand, Bunge and Alessi (2016) assert that the Germanypublic may oppose the acquisition, but such an opposition would onlyhurt the company in the short run. The takeover will boost Bayer’sprofitability and earnings thus, the purchase premium will proveworthwhile in the long run. Thus, the takeover, may boost the firm’searnings and profitability, but at the same time will provedetrimental given the attractiveness of the pharmaceutical businessesand the challenges associated with the agrochemical businessespecially volatility in the market. In this regards, given thecurrent situation of both companies and the issues surrounding GMOs,it is critical to point out that the purchase premium is notworthwhile in the short-run, but will prove worthwhile in thelong-run.
Integrationissues that Bayer may face
All takeover bid whether successful or not raises some integrationissues for the buying company especially given the differentorganizational cultures of the two firms. The takeover wouldstrengthen Bayer as corporate power and a worldwide innovation-drivenscience firm with cohesive agriculture systems and leadershippositions. However, it is essential to note that the degree ofintegration during takeover depends on the compatibility of businesscultures, prerequisite for cost synergies, and nature of the deal.Bayer will face synergy issues since some clients will not regard thetakeover worthwhile thus, the company may lose these clients. Afterthe acquisition of Monsanto there is synergy issue given that Bayershareholders view the company as a pharmaceutical player rather thana crop business. The issue is going to affect Bayer based on the factthat Monsanto deals with crop business while the top level managementhas established a strategy that will focus on agrochemicals,pharmaceuticals and offering of the counter drug services. This mightaffect Bayer based on the fact that after acquisition of Monsanto thecustomers will think that Bayer is offering both the agrochemicals,pharmaceutical and crop business. It is important to note that thetakeover will result in lost revenue or increased costs through lostclients and takeover processes thus, the company will have to dealwith synergy issues. Moreover, both companies are based in differentcountries, which means cross-border and the need for business cultureissues will arise. Bayer is a pharmaceutical firm while Monsanto isan agrochemical firm thus, their consolidation will lead to culturalissues. Both firms have different organizational culture thus,aligning the culture to a common behavior will prove a challenge.
Bayer’sreliance on GMOs
If the acquisition takes place Bayer will greatly rely on geneticallymodified crops based on the fact that the GMOs have been tested andthey do not have any effect both to animals and human beings. Despitethe current concerns on agrochemicals, Bayer will greatly focus onthe agrochemical business if the acquisition becomes successful.According to Alessi (2016), analysts believe that Bayer will focustoo much on the biotech crops. The genes in the Genetically ModifiedCrops help the plant to survive sprays and production of bugrepelling proteins. The technology plays a major role in making surethat food sustainability is enhanced and thus the production of foodincreased in various countries. Based on the fact that Bayer willdeal with both agrochemicals and pharmaceuticals, then theacquisition should be in a position to clarify whether theGenetically Modified Crops are harmful to human being and to theenvironment. If there are such genes likely to cause health hazardousto human being or animals, then the pharmaceuticals department shouldbe in position to deal with the challenge. The Food and DrugAdministration commission have concluded that genetically modifiedcrops are safe to eat and they are not harmful to the environment andthus Bayer should proceed in reliance of GMOs. The reliance on thebiotech crops will hurt the company’s pharmaceutical businessthrough which Bayer currently generates its earnings. Moreover,opposition from environmental groups on the growth, production, andconsumption of GMOs continues to increase, and this might the firm’searnings in the short run. It is important to note that Bayer is notwell conversed with GMOs hence, the reliance on them will provechallenging given the volatility in the market.
Bayer’sstrategic plans in future
The takeover comes in the wake of change of Bayer’s CEO thus, itsignals to a different strategic approach by the company. Thetakeover means that Bayer will become the largest agrochemicalbusiness in the world while the change of the CEO 3 weeks before thetakeover shows that the firm is bent on ensuring a differentstrategic approach. Currently, the business sector is realizingnumerous consolidations and realignment and it seems that the companyhas realized that it must change its approach to become competitive.The timing of the takeover presents some advantages to the firm sincethe new CEO will be psychologically prepared to the change and theacquisition than the previous CEO. Moreover, the new CEO will attainthe set objectives and expectations better than the previous CEOgiven that a new CEO is always keen to follow the objectives. Thecombination would make sure that the largest agrochemical business isoperational and thus it would be possible to have a future in theagricultural products. The CEO will push for the strategy easily andhelp the company transition effectively through the takeover. In thisregards, the timing of the change of CEO and the takeover shows thatthe firm wants to take advantage of the diversity that exists in theagrochemical business. Moreover, it seems that the firm has realizedthe opportunities that exist in the agrochemical business and wantsto utilize the opportunities to drive its objectives. Although theagrochemical business faces challenge in terms of market volatilityand criticisms from environmental groups, increased sustainabilityconcerns especially food security means that the business will becomeimportant in future. As such, the company has taken a futuristicstrategic approach, which allows the identification of opportunitiesin the market and the utilization of the opportunities to profit theworld.
Alessi, C. (2016). Bayer makes $62 billion bid for Monsanto:Combination would create one of the world’s largest agrochemicalbusiness. Wall Street Journal.
Bunge, J. & Alessi, C. (2016). Monsanto deal would put Bayer deepinto GMO:
Pharmaceutical company’s purchase would make agricultural productshalf its future business. Wall Street Journal.