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Bayer : Big Move Triggers 'Doubts' -- WSJ

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08/23/2017 | 08:48am CEST

EU antitrust regulator to take deeper look at $57 billion deal to acquire Monsanto

By Natalia Drozdiak and Jacob Bunge 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 23, 2017).

Bayer AG's takeover of Monsanto Co. faces deeper scrutiny from European antitrust regulators who say they have "serious doubts" about uniting two of the world's largest manufacturers of genetically engineered crop seeds and pesticides.

The European Commission said the $57 billion deal could add pressure on farmers already struggling against low crop prices. It has completed a preliminary probe but said Tuesday that it may need until January to finish its work, throwing into doubt the companies' plans to complete their deal by year-end.

It is common for regulators to take longer than initially expected to conduct their analyses. The planned tie-up between Bayer and Monsanto, the largest in a string of deals that are reshaping the global agricultural industry, was struck last September as several other rival seed and pesticide makers had made their own deals to combine.

EU antitrust chief Margrethe Vestager said: "We need to ensure effective competition."

European Commission officials have said the Bayer-Monsanto deal raised concerns that farmers could wind up paying more for a narrower range of seeds and sprays, and see a slower pace of innovation in the labs where crop scientists tweak plant genes to enable them to survive herbicides and repel bugs.

Bayer and Monsanto both said the companies would continue to work with regulators with a view to obtaining approvals for the transaction by the end of the year.

A separate review by U.S. regulators is ongoing, and Bayer earlier this year said it had received requests for information from the U.S. Department of Justice.

Bayer and Monsanto have pitched their deal as a way to more tightly integrate research into new chemicals and seed genes, which in turn would help deliver better-performing supplies to farmers at a faster pace while reducing the companies' costs.

But some farm groups and lawmakers in the U.S. have warned that the succession of mergers will diminish competition and lead to higher prices on the farm, and potentially for consumers.

Groups pushing back against agriculture industry consolidation have called on regulators to block the Bayer-Monsanto deal. This month a group of 24 agriculture organizations warned that the deal would strengthen Bayer's hand with farmers and with smaller seed companies.

The past year has been another lean one for farmers. Swelling grain supplies in the U.S., Europe and South America have made corn, soybeans and wheat cheap, forcing farmers to curb spending.

Soybean and wheat prices have declined further over the past 12 months, and the U.S. Department of Agriculture projects that U.S. net farm income will slide to $62.3 billion this year -- the fourth consecutive annual decline, and half what domestic farmers earned in 2013.

Some farmers in recent years have been able to counter cut-rate grain prices by harvesting bumper crops. But dry weather across some stretches of the U.S. Farm Belt this summer will make that harder as combines roll in the autumn, analysts say.

"I don't think the average corn or soybean producer will be in the black this year," said Michael Langemeier, professor of agricultural economics at Purdue University in Indiana.

Lindsey Lusher Shute, executive director of the National Young Farmers Coalition, which signed the August letter, said: "This is not a time to narrow the options farmers have available to them."

Bayer and Monsanto are seeking approval after the EU and other antitrust bodies already cleared the merger of Dow Chemical Co. and DuPont Co. as well as China National Chemical Corp.'s roughly $43 billion takeover of Swiss seed and pesticide maker Syngenta AG. The companies made considerable divestitures to win approval in both cases.

In spelling out its concerns about the Bayer and Monsanto deal, the EU said the two companies have a high market share in breeding or licensing -- and in some cases both -- vegetable, canola and cotton seeds.

The EU also noted the two companies were the only firms among a limited number of competitors capable of discovering new active ingredients and new formulas, such as those that could tackle the problem of increased weed resistance to existing herbicides.

Bayer and Monsanto already have submitted various commitments to the EU, but regulators deemed them insufficient to dismiss their "serious doubts" about the merger.

Bayer in May agreed to shed its glufosinate herbicide business along with related crop genes that render plants impervious to the chemical, as a condition for approval from South African competition authorities. Bayer is looking to divest some cotton and canola seed units, according to people familiar with the discussions.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Jacob Bunge at jacob.bunge@wsj.com

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Financials ($)
Sales 2017 14 433 M
EBIT 2017 3 259 M
Net income 2017 2 008 M
Debt 2017 6 949 M
Yield 2017 1,83%
P/E ratio 2017 26,17
P/E ratio 2018 21,57
EV / Sales 2017 4,05x
EV / Sales 2018 3,86x
Capitalization 51 467 M
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Mean consensus OUTPERFORM
Number of Analysts 18
Average target price 124 $
Spread / Average Target 5,9%
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Managers
NameTitle
Hugh M. Grant Chairman & Chief Executive Officer
Brett D. Begemann President & Chief Operating Officer
Pierre C. Courduroux Chief Financial Officer & Senior Vice President
Robert T. Fraley Chief Technology Officer & Executive VP
Robert J. Stevens Lead Independent Director
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