Deal size: $63 billion
Date announced: September 14, 2016
As the agriculture industry consolidated, Bayer wanted to bulk up, too. Rivals Syngenta and ChemChina on the one hand, and Dow Chemical and DuPont on the other, were building scale through their own deals, after all.
And Monsanto, with its genetically modified crop seeds and pesticides businesses, plus a strong presence in the U.S., looked like the perfect target for the German company.
But the road to closing the deal was bumpy. Monsanto, playing hard to get, forced Bayer to sweeten its offer three times—from $122 per share to $128—before the two shook hands in September 2016.
Then, antitrust reviews hit what Bayer CEO Werner Baumann called “unimaginable depths.” The European Commission and the U.S. Department of Justice only granted their go-aheads after Bayer agreed to chop off a large portfolio of assets to German rival BASF. The pair finally completed their merger in mid-2018, almost two years after agreeing to the deal.
Valued at $63 billion, the buyout did boost the volume of Bayer’s agrichemical franchise. For the fourth quarter of 2018, after the selloff to BASF, sales in Bayer’s crop science unit more than doubled year over year on a reported basis to €4.66 billion ($5.16 billion).
But in the meantime, the buy also carried over a big headache: lawsuits that claim Monsanto’s Roundup weedkiller caused cancer.
As of Oct. 11, 42,700 plaintiffs have joined in, snowballing from just 120 when the Monsanto buyout closed in 2016. Even though management repeatedly backed the product’s safety and promised to defend itself “vigorously,” shareholders aren't happy—especially as Bayer lost all three cases that have come to a decision so far, with multimillion-dollar damages granted to the plaintiffs.
Worried investors slashed about 30% off Bayer’s stock value at its lowest, wiping out almost the entire value of the Monsanto deal. Its share price started ticking upward recently at the prospect of potential settlements, but those settlements have yet to materialize.
The thing is, Bayer is a much more diversified conglomerate than its crop science competitors. So, Baumann’s management had promised the Monsanto acquisition wouldn't drain resources away from the company’s other businesses—especially its fast-growing and important pharma unit.
Nevertheless, analysts pointed out that Bayer’s pharma pipeline was too thin to fill the gap once its best-selling drugs—blood thinner Xarelto and eye drug Eylea—lose patent protection around 2023.
Beefing up that pipeline requires cash, though, and Monsanto isn't helping. The deal pumped up Bayer's debt load to €35.7 billion ($39.5 billion) at the end of 2018. The Roundup lawsuits, of course, threaten to take a big bite out of its balance sheet. And the concern is that Bayer won’t have enough money to pull off any major pharma deals.
At Bayer’s annual meeting in April, shareholder disgruntlement culminated in a rare no-confidence vote in management with 55.5% registering their disapproval.
And that's after a few moves Baumann made to regain investor confidence. He set Bayer on a major restructuring late last year, for one thing; the organizational overhaul was designed to cut 12,000 jobs. Bayer also jettisoned consumer health brands Dr. Scholl’s and Coppertone and hived off its animal health unit in $7.6 billion deal with Elanco. Two C-level executives are also set to leave as the company improves efficiency.
“The strategic logic of the Monsanto acquisition remains intact,” Bayer said in a statement to FiercePharma. “The business results that we’ve seen together with Monsanto show that we’re on the right track.”
The German conglomerate intends to invest about €35 billion ($38.7 billion) in the company’s future by 2022, with R&D accounting for more than two-thirds of that number. “We are continuously screening the market for appropriate bolt-on acquisitions and in-licensing across our group,” it said.
To that end, Bayer has gained full control of tumor-agnostic treatment Vitrakvi and experimental TRK inhibitor LOXO-195 (BAY 2731954), following developer Loxo Oncology’s acquisition by Eli Lilly. It also recently shelled out $240 million upfront to buy the remaining stake in its cell therapy joint venture, BlueRock Therapeutics, which has an induced pluripotent stem cell pipeline.