Bayer's interest in Monsanto reignites talk of animal health sale

Bayer
Bayer

Bayer execs have said for years that the company either needed to build up or get out of the animal health business. Now new CEO Werner Baumann has a really good reason to sell the unit--to help fund Bayer’s rumored buyout of seed giant Monsanto.

Reports arose Thursday that the German company has had talks both internally and with advisers about making a bid for the $43 billion U.S. maker of Roundup and Roundup Ready seeds. Analysts tell Bloomberg it would take $90 billion or more to strike a deal.

Bayer has some cash and can issue debt, but to make a deal of this size work, the company might want to sell its animal health business, as well as its plastics business, Colin Isaac, a chemical analyst with Atlantic Equities in London told the news service. “It’s a very ambitious deal for either company,” he said, pointing out that, “Historically, these have been fairly conservative institutions.”

Jeremy Redenius, an analyst at Sanford C. Bernstein & Co., agrees, and in a note to investors Thursday, mentioned a sell of Bayer’s animal health unit as potentially being one part of a buyout scenario.

Neither company is commenting on any possible negotiations but given his dealmaking resume, the stage was set for M&A when Baumann was named Bayer CEO this year with a mandate to continue refocusing the company in life sciences.

And Baumann himself is on the record saying the animal unit ranks fourth or fifth in the world and either needs to be built up or sold. During an April earnings call he signaled an interest in a sale by questioning whether Bayer’s animal health assets are “well placed with us as best owner or can these businesses perhaps progress better in a different environment, with different access to resources?"

He also conceded Bayer's inability to make strategic acquisitions in animal health. Bayer lost out to Eli Lilly ($LLY) in a bid to buy Novartis ($NVS) Animal Health and earlier missed an opportunity to pick up veterinary products from Schering-Plough. As Bayer was preparing to spin off its plastics unit, Covestro--which it eventually did for $1.7 billion in October 2015--the Wall Street rumor mill went wild with speculation it might buy Zoetis ($ZTS). But that deal never materialized.

No one will be surprised if Baumann starts out his tenure with a big deal and sells animal health to do it. When Baumann, 53, took over from Marijn Dekkers as the top exec May 1, people who knew him said he had ideas of his own about the future of the company. They pointed out that he was deeply involved in Bayer's acquisitions in recent years, including its 2006 buyout of Schering and its $14.2 billion acquisition of the Merck & Co. ($MRK) consumer health unit two years ago. Investment bankers say he has no hesitancy to do a deal.

But former Bayer exec Lutz Krafft, now a senior agricultural adviser at consulting firm ChemAdvice GmbH, told Bloomberg that pursuit of Monsanto is no small deal. “If Bayer is ready to put up the billions, then voila! That’s the real issue here,” Krafft said “The effects on Bayer’s balance sheet and the integration of the company are the two challenges.”

- read the Bloomberg story

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