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Big Seed’s big players prepare to dance

Since late last summer, Big Seed’s big players have looked more like anxious high school kids hoping to pair off for the senior prom than international businesses investing in new products and markets.

The first to go courting was St. Louis-based Monsanto. Last August it offered nearly $46 billion for its Swiss classmate, Syngenta, only to be spurned. Syngenta later sold itself to ChemChina for $43 billion.

In December, DuPont, owner of Pioneer, and Dow Chemical agreed to a “merger of equals.” The influential magazine Economist saw it differently; it called the deal “a bad romance” pushed by “activist investors” looking for a fast buck instead of by management with a plan “to concentrate on higher-margin products.”

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Either way, the new company, called DowDupont, believes it will pass antitrust muster by midsummer to become a $130-billion-a-year giant.

Monsanto returned to the dance floor in March to make a pass at Bayer’s crop science unit for a reported $30 billion. Like Syngenta, though, Bayer declined Monsanto’s overtures.

Two months later, Bayer took the lead. On May 22, Bayer confirmed it hoped to buy Monsanto, the world’s biggest biotech seed company, for $62 billion, or a fat 37 per cent premium to its May 9 share price.

The proposed deal didn’t get much love on Wall Street. Despite Bayer’s sweet offer of $122 per share, investors didn’t lift the stock to that level even after the buyout went public, a rarity.

Monsanto rejected the Bayer offer May 24. Hugh Grant, Monsanto’s CEO, curtly explained the kiss-off by saying the “current proposal significantly undervalues our company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition…”

Bloomberg News, however, did note that Grant “remains open to further deal talks…”

In other words, if you want to date Monsanto, Herr Baumann, bring more money.

How much more?

Some analysts say Bayer could boost its $122-per-share bid to $140 because the combined firm (about 40 per cent ag based) would control nearly 30 per cent of the global pesticide market, 36 per cent of U.S. corn seed market, and 28 per cent of the American soybean seed market.

And, too, the combined company’s genetic material would be present in 80 per cent of all corn sold in the U.S. and 90 per cent of soybeans.

Consumer groups in the U.S. and Europe see that size as the key reason antitrust regulators on both continents should either kill the deal or require the newly merged company to heavily pare its joint holdings.

They shouldn’t hold their collective breath. A merged Bayer/Monsanto would be about equal in size of merged ChemChina/Syngenta. Green lighting one would likely green light both.

Also it’s hard to imagine any nation taking antitrust action against any global biotech company or merger of companies that argues scale is a vital element in the discovery of new and innovative ways to feed the world.

That means a year from now six of the biggest Big Ag companies will likely be only three, and those Bigger Still firms will dominate 60 per cent of the global seed market and 75 per cent of the world’s ag chem market.

All, however, will find their research efforts undermined by the new debt each used to buy their bigger market position.

The Farm and Food File is published weekly through the U.S. and Canada.

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