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Why a Monsanto Deal Would Help Bayer’s Geographical Synergies

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Geographical synergies

On Monsanto’s (MON) proposal, Bayer commented, “The combined business would benefit from a combined R&D pipeline that would deliver valuable and innovative solutions for farmers, with a focus on long-term investments to help advance the next generation of farming.” Keeping that statement in mind, we believe Monsanto’s acquisition will also help Bayer expand its geographic reach.

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Access to North America

As of 2015, Bayer has a high concentration in Europe and Latin America, with 30% and 29% of revenue coming from these two regions, respectively. Bayer has 26% exposure to North America and 15% to Asia-Pacific. With Monsanto, Bayer will expand its coverage of North America significantly—as well as other markets where Monsanto is present. Monsanto earned about 65% of its revenue, or ~$9.7 billion, from North America in 2015. Of this 57%, $8.6 billion came from the United States alone.

Revenue contribution by region

This acquisition will also help Monsanto increase its market reach in regions where Bayer is present. So this deal would bring geographical synergies to both companies. Taking a look at the 2015 pro forma sales of Monsanto and Bayer, we see that Bayer would significantly increase its revenue share in North America from this deal, with Latin America and Europe to follow.

Impact on earnings per share

If the deal happens, we would see accretion in mid-single-digit percentages in the first year and in double-digit percentages after the first year to Bayer’s earnings per share, according to the company.

You can also access Monsanto through the VanEck Vectors Agribusiness (MOO). The fund invests about 31% of its portfolio in agricultural chemicals—including 9.5% in Monsanto, 7.4% in Syngenta (SYT), 3.6% in Agrium (AGU), and 2.6% in Mosaic (MOS).

To learn more about the what could happen next, read Bayer Makes an Unsolicited Approach to Monsanto.

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