Bayer headquarters in Leverkusen, western Germany. Bayer, the maker of Aspirin and other pharmaceuticals and chemicals, is buying Monsanto in a deal valued at $66 billion. If approved, it would make one of the world's biggest agri-chemical companies. — AFP Photo

LEVERKUSEN (Biz Hub) – Bayer and Monsanto announced on Wednesday that they signed in a definitive merger agreement under which Bayer will acquire Monsanto for US$128 per share in an all-cash transaction.

Based on Monsanto's closing share price on May 9 this year, the day before Bayer's first written proposal to it, the offer represents a premium of 44 per cent to that price.

"We are pleased to announce the combination of our two great organizations", Werner Baumann, CEO of Bayer AG, said.

"This represents a major step forward for our Crop Science business and reinforces Bayer's leadership position as a global innovation-driven life sciences company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees and society at large."

Today's announcement is a testament to everything we've achieved and the value that we have created for our stakeholders at Monsanto.

We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration," Hugh Grant, chairman and chief executive officer of Monsanto, said.

The combined business will benefit from Monsanto's leadership in seeds and traits as well as climate corporation platform along with Bayer's broad crop protection product line across a range of indications and crops in all key geographies.

As a result, growers will benefit from a broad set of solutions to meet their current and future needs, including enhanced solutions in seeds and traits, digital agriculture, and crop protection.

The combination also brings together both companies' leading innovation capabilities and research and development technology platforms, with an annual research and development budget of approximately 2.5 billion euros.

"We are entering a new era in agriculture – one with significant challenges that demand new, sustainable solutions and technologies to enable growers to produce more with less," Hugh Grant, Chairman and Chief Executive Officer of Monsanto, said.

"This combination with Bayer will deliver just that – an innovation engine that pairs Bayer's crop protection portfolio with our world-class seeds and traits and digital agriculture tools to help growers overcome the obstacles of tomorrow."

Value creation

Pro-forma sales of the combined agricultural business amounted to 23 billion euros in calendar year 2015. The combined company will be well positioned to participate in the agricultural industry with significant long-term growth potential.

Beyond the attractive long-term value creation potential of the combination, Bayer expects the transaction to provide its shareholders with accretion to core EPS (earnings per share) in the first full year after closing and a double-digit percentage accretion in the third full year.

Bayer has confirmed sales and cost synergies assumptions in its due diligence and expects annual EBITDA contributions from the synergies of approximately $1.5 billion after the third year, plus additional synergies from integrated solutions in future years.

Bayer intends to finance the transaction with a combination of debt and equity. The equity component of approximately $19 billion is expected to be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights. Bridge financing for $57 billion is committed by BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC, and JP Morgan.

The acquisition is subject to conditions, including Monsanto shareholder approval and receipt of required regulatory approvals.

The merger is expected by the end of 2017.

Bayer has committed to a $2 billion reverse antitrust break fee, reaffirming its confidence that it will obtain the necessary regulatory approvals.— VNS