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Synergies Monsanto and Bayer Could Exploit through a Merger

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Sep. 14 2016, Updated 9:05 a.m. ET

Why a merger?

If Monsanto (MON) and Bayer merge, it would become the largest global pesticide and seed company. Monsanto’s business is the best fit for Bayer’s Crop Science segment, which contributes ~22% of Bayer’s revenue. The Crop Science segment is similar to Monsanto’s business, which deals with crop protection such as insecticides and herbicides as well as crop seeds.

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Synergies

Monsanto’s Seeds & Traits, Herbicides, and SeedGrowth business would add about 12.7 billion euros to Bayer’s total sales. Crop Science would have accounted for 39% of Bayer’s revenue. Earlier 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.”

With Monsanto, Bayer will expand its coverage significantly in North America (MOO) 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 US alone.

Industry consolidating

With the industry consolidating—such as Dow Chemicals (DOW) and DuPont (DD) as well as Syngenta (SYT) and ChemChina—investors hope that synergies will reduce costs and improve margins amid falling prices. Recently, PotashCorp (POT) announced that it’s in a merger discussion with Agrium (AGU). Read PotashCorp and Agrium Are Discussing a Possible Merger to learn more.

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