German drug and farm chemical maker Bayer says it will take over U.S. agricultural biotechnology and agrochemical company Monsanto in a $66-billion deal, creating one of the world’s largest agri-tech conglomerates.
Werner Antweiler, associate professor in the UBC Sauder School of Business and international trade policy chair, shares his thoughts on the megamerger that has the potential to reshape the world’s food supply.
Will Bayer succeed or can this deal still falter?
Corporate mergers are not for the faint of heart. A takeover requires chutzpah and single-mindedness—the willingness to disrupt chains of commands in the acquired business, split units, move units, eject underperforming units, and unify the corporate culture. That is why hostile takeovers tend to perform better: the acquiring firm bites down hard on a nut, chews, swallows, and digests. Friendly takeovers run the risk of drifting into conglomerative indifference.
What is missing in the Bayer-Monsanto deal is the compelling vision of a clear goal that can only be achieved jointly. If Bayer CEO Werner Baumann wants to succeed, he needs to execute his strategy with aplomb and deliver a compelling vision of how the merged entity will transform the future of farming around the globe. To his advantage, Baumann knows Bayer better than some of his CEO predecessors. As a company insider for nearly 20 years with plenty of international experience, he understands the strengths and weaknesses of Bayer like few others. At the helm only since May, this father of four children just got himself a new kid—an unruly but gifted teenager with a reputation of being a bully. Good parenting will be required.
Why did Bayer target Monsanto?
Bayer has been on a course of re-organization for more than a decade. In 2005, it spun off its basic chemical division into a new company, Lanxess. That allowed Bayer to focus more on its core business of health care, nutrition, and materials. Last year, Bayer further consolidated its operations by spinning off its materials science division into Covestro. While divesting some units, it strengthened others. In 2014, Bayer bought Merck’s consumer health business in the U.S. Acquiring Monsanto continues Bayer’s repositioning.
What made Monsanto particularly appealing to Bayer is its deep and complementary research and development capability and patent pipeline in crop science. Combining crop traits (Monsanto’s strength) with crop protection (Bayer’s strength) makes a lot of business sense. Even more enticing to Bayer is Monsanto’s digital farming platform. The next generation of farming will require customizing solutions to local circumstances.
Monsanto was seen as “evil” by many activists—will Bayer be “Mr. Nice Guy”?
Genetically-modified organisms (GMOs), including crops, are controversial. On one side, GMO crops promise higher productivity to farmers and a more secure food supply for a growing population. On the other hand, unknown long-term consequences of using GMOs have prompted calls by activists to ban them altogether, or at least label them. Monsanto developed a negative image because its marketing tended to be arrogant, and its sales tactics tended to be aggressive. As a result, Monsanto became the target of much protest, ridicule and even hatred.
Bayer’s takeover of Monsanto may provide a fresh start if it fixes Monsanto’s deficiencies in corporate culture. Based in GMO-hostile Europe, Bayer has a good track record for engaging stakeholders and critics. Bayer has been around for more than 150 years and knows a few things about corporate social responsibility that Monsanto doesn’t. For the merger to succeed, Bayer CEO Baumann needs to avoid the mistakes that Daimler CEO Jürgen Schrempp made in 2005. In order to make the new Bayer “Mr. Nice Guy” in the market place, Baumann needs to be “Mr. Bad Guy” in the executive suites in St. Louis, Mo., where Monsanto is headquartered. Even though Monsanto will probably disappear as a brand name, this itself will not be enough to restore trust.
Will the size of the new Bayer stifle competition?
Bayer and Monsanto have quite different corporate profiles by segment and region. While Bayer’s North American revenue only makes up a quarter of its total, Monsanto’s revenue is 82 per cent based in the Americas. Bayer’s core segments are fungicides, herbicides and insecticides, while Monsanto’s are seeds for corn, soybeans, and vegetables. The two companies complement each other, but the combination of their operations will not itself lead to market dominance either regionally or in particular market segments. What is more worrying for competition is that the Bayer-Monsanto deal is part of a recent wave of mergers in the crop science industry that leaves only a handful of companies competing in major market segments. In the U.S., Bayer-Monsanto and Dupont-Dow will control three-quarters of the market for corn seeds. Bayer-Monsanto will control a third of the world’s herbicides market, Adama-Syngenta another quarter and Dupont-Dow another fifth. These three companies will also control two-thirds of the global insecticides markets. Lack of competition is bad news for farmers.