BERLIN -- Bayer's acquisition of Monsanto would create a robust seed and farm chemical company with a strong footprint in the U.S., Europe and Asia, combining two businesses with complementary geographical markets, an analyst said.
But Bayer might have to shed part of its business because of anti-trust concerns. And the price tag on any deal would be huge: Monsanto's market value is about $42 billion.
"A combination of both companies would create $67 billion of annual sales and the world's largest seed and crop-chemical company," analyst Ulrich Huwald at Warburg Research wrote in a research note to investors. "However, the question is if Monsanto would be interested in a deal."
Germany-based Bayer AG said Thursday in a short statement that its executives had met recently with their Monsanto counterparts "to privately discuss a negotiated acquisition" of the specialist in genetically modified crop seeds.
The news of a potentially costly deal sent Bayer shares tumbling. They were down 8.6 percent at about $98.50 in afternoon trading in Europe. Monsanto shares were 5 percent higher at $101.98 in New York.
Both companies' products are used on farms worldwide. Bayer, whose farm business produces seeds as well as compounds to kill weeds, bugs and fungi, said an acquisition would help it "create a leading integrated agriculture business."
Monsanto, based in St. Louis, said it was reviewing Bayer's proposal. Neither company gave other details.
Rumors of a deal had circulated for a week, but Bayer's statement was the first acknowledgment from either company of a potential acquisition.
Huwald said "the businesses are geographically complementary, with Monsanto having a strong presence in North America and Bayer in Europe and Asia."
A combination of the two would have 28 percent of the global market for pesticides and a strong presence in the U.S. corn- and soybean-seed business.
Huwald said the two companies overlap in their vegetable and cottonseed businesses, which could require divestments because of anti-trust concerns. Bayer also might have to sell parts of its weedkiller business.
Anti-trust regulators can scrutinize mergers and takeovers and block them if they hinder free-market competition. If companies get too much control over a market, they can charge higher prices and have fewer incentives to innovate.
News of the talks comes after a wave of consolidation in the chemicals industry: DuPont and Dow Chemical agreed to combine last year, and ChemChina agreed to buy Syngenta of Switzerland in March after Monsanto's own bid for its Basel-based rival failed.
Monsanto has about 20,000 employees and produces seeds for fruits, vegetables and other crops including corn, soybeans and cotton, as well as the popular weedkiller Roundup.
Its sales have suffered recently as falling crop prices have reduced farmers' spending on its genetically enhanced seeds. Meantime, the strong U.S. dollar has meant its products are more expensive overseas.
Bayer, which is based in Leverkusen, Germany, specializes in health care and agriculture, employs about 117,000 people worldwide and had sales last year of $52.22 billion.
Business on 05/20/2016