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BASF to buy seeds, herbicide businesses from Bayer for $7 billion

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10/13/2017 | 02:51pm CEST
FILE PHOTO: A truck drives past a warehouse of German chemical company BASF in Ludwigshafen

FRANKFURT (Reuters) - BASF (>> BASF) has agreed to buy seed and herbicide businesses from Bayer (>> Bayer) for 5.9 billion euros ($7 billion) in cash, as Bayer tries to convince competition authorities to approve its planned acquisition of Monsanto (>> Monsanto).

FRANKFURT (Reuters) - BASF (>> BASF) has agreed to buy seed and herbicide businesses from Bayer (>> Bayer) for 5.9 billion euros ($7 billion) in cash, as Bayer tries to convince competition authorities to approve its planned acquisition of Monsanto (>> Monsanto).

BASF, the world's third-largest maker of crop chemicals, has so far avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licenses out to seed developers.

But Bayer's $66 billion deal to buy U.S. seeds group Monsanto, announced in September 2016, has created opportunities for rivals to snatch up assets that need to be sold to satisfy competition authorities.

Bayer said it would use the proceeds to partly refinance the Monsanto acquisition. It plans to raise $19 billion toward the deal by issuing convertible bonds and new shares, and has lined up as much as $57 billion of bridge financing from banks.

Baader Helvea analyst Markus Mayer said a higher-than-expected valuation of the assets up for sale could mean Bayer now needs to raise less than $10 billion from the sale of new shares, which would be a positive surprise.

Bayer had offered to sell assets worth around $2.5 billion. The European Commission said in August that the divestments offered by Bayer so far did not go far enough and started an in-depth investigation of the deal.

Bayer has to sell the LibertyLink-branded seeds and Liberty herbicide businesses, which generated 2016 sales of 1.3 billion euros, because they compete with Monsanto's Roundup weed killer and Roundup Ready seeds.

LibertyLink seeds, used by soy, cotton and canola growers, are one alternative to Roundup Ready seeds for farmers suffering from weeds that have developed resistance to the Roundup herbicide, also known as glyphosate.

The spread of Roundup-resistant weeds in North America has been a major driver behind Liberty sales.

"BASF's decision to acquire seeds assets represents something of a change to its prior view on its needs to respond to recent industry consolidation in agriculture," Morgan Stanley analysts said.

"Nonetheless, the proposed assets for acquisition are high margin and high growth and represent a sensible bolt-on addition," they added.

BASF Chief Executive Kurt Bock told a conference call he would look at further acquisition opportunities in the seeds sector as well but said it would take "two to tango".

The group is also expected to look at other assets – such as vegetable seeds – that Bayer may be forced to divest, a person close to the matter said.

Shares in Bayer rose 1.2 percent to the top of Germany's blue-chip DAX index <.GDAXI> by 1230 GMT, while BASF was up 0.2 percent.

POSITIVE SURPRISE

The sale to BASF values Bayer's assets at around 15 times 2016 operating profit (EBITDA) of 385 million euros, which analysts said was reasonable compared with multiples of 19.3 for ChemChina's [CNNCC.UL] takeover of Syngenta (>> Syngenta) and more than 20 for Dow's <DOW.N> tie-up with DuPont <DD.N>.

BASF will finance the acquisition through a combination of cash on hand, commercial paper and bonds.

It is expected to reap sales synergies in the hundreds of millions of euros. On the cost side, however, savings will be slim at first as there is little overlap with BASF's existing business and the group has promised to keep all permanent staff at the businesses it is buying for at least three years.

The acquisition will add to its earnings by 2020, it said.

The deal is conditional upon Bayer's acquisition of Monsanto going through. While the European Commission could block that transaction, it has approved others, such as the Dow-DuPont deal and ChemChina's takeover of Syngenta - although only after securing big concessions.

Bayer said it continued to work with the authorities to close the Monsanto purchase by early 2018.

As part of the asset sale to BASF, more than 1,800 staff, primarily in the United States, Germany, Brazil, Canada and Belgium, will transfer to BASF. It is also acquiring manufacturing sites for glufosinate-ammonium production and formulation, seed breeding facilities and research facilities.

Deutsche Bank advised BASF on the deal, while BofA Merrill Lynch and Credit Suisse advised Bayer.

(Reporting by Maria Sheahan; Additional reporting by Arno Schuetze; Editing by Tom Pfeiffer and Keith Weir)

By Maria Sheahan

Stocks treated in this article : Monsanto, Bayer, Syngenta, BASF
Stocks mentioned in the article
ChangeLast1st jan.
BAYER -0.71% 100.08 Delayed Quote.-2.22%
DAX -0.74% 13010.55 Delayed Quote.0.72%
MONSANTO 0.00%-End-of-day quote.9.57%
SYNGENTA 0.20% 453.4 End-of-day quote.0.31%
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Financials (€)
Sales 2018 66 530 M
EBIT 2018 8 652 M
Net income 2018 5 568 M
Debt 2018 16 006 M
Yield 2018 3,68%
P/E ratio 2018 14,07
P/E ratio 2019 13,18
EV / Sales 2018 1,45x
EV / Sales 2019 1,35x
Capitalization 80 367 M
Chart BASF
Duration : Period :
BASF Technical Analysis Chart | BAS | DE000BASF111 | 4-Traders
Technical analysis trends BASF
Short TermMid-TermLong Term
TrendsNeutralNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 25
Average target price 102 €
Spread / Average Target 16%
EPS Revisions
Managers
NameTitle
Martin Brudermüller Chairman-Executive Board
Jürgen Hambrecht Chairman-Supervisory Board
Hans-Ulrich Engel Chief Financial Officer & Vice Chairman
Michael Diekmann Vice Chairman-Supervisory Board
François Diederich Member-Supervisory Board
Sector and Competitors
1st jan.Capitalization (M$)
BASF-4.62%93 298
DOWDUPONT-3.99%157 233
ROYAL DSM12.06%18 804
GROUPE BRUXELLES LAMBERT4.34%17 616
EVONIK INDUSTRIES-2.81%16 494
MITSUBISHI CHEMICAL HOLDINGS CORP.-22.88%13 208