MONEY

Monsanto, Bayer deal raises farmers' anxiety level

Christopher Doering
cdoering@gannett.com

WASHINGTON — Iowa farmers are anxiously waiting to see if they will be helped or harmed by the purchase of seed giant Monsanto Co. by Germany’s Bayer AG — a deal that could shrink competition and increase prices, but also raises the prospect of better seeds and chemical products that could bolster their profits.

Monsanto, the world’s largest seed company, has agreed to sell itself to Bayer for $66 billion in a deal that would combine the St. Louis company’s prominence in seeds and traits with Bayer’s market-leading position in the crop chemical business.

A Monsanto location in Ankeny on Wednesday, Sept. 14, 2016. The health and agricultural company Bayer announced it's acquisition of Monsanto today.

The merger, which has been in the works for months, is the latest in a wave of consolidation of crop, seed and fertilizer companies during the farm economy's prolonged downturn — a trend that has Iowa farmers and politicians on edge. While the merger could spur innovation, it also reduces competition. Competition in an industry usually holds down prices.

“It’s mixed emotions for all of us in farming and agriculture,” said Ray Gaesser, a corn and soybean producer in Corning, Ia., who has been farming since 1967. “We definitely need new traits. Finding the best avenue to get that done is what we should be after, but at the same time we’re concerned about the consolidation and being down to three or four majors instead of six we had even a year ago.”

The companies said no announcement has been made on whether jobs will be eliminated once the merger concludes. Monsanto has extensive operations in Iowa, with facilities in Huxley, Ankeny and Muscatine. Monsanto employs 2,356 workers in Iowa with a payroll of $86 million. The company has 1,886 Iowa retailers.

Monsanto and Bayer officials said the merger would create an agricultural behemoth, resulting in an “innovative engine” that could more quickly develop new products to help farmers boost yields and cut costly inputs. The merger is expected to close by the end of 2017.

Hugh Grant, Monsanto’s chief executive, told reporters that the deal with Bayer “will create a leader in agriculture that will accelerate our goals as an innovator in the sector."

"Farmers are starving for innovation," Grant said. "They are looking for the edge that brings them … that next bushel of grain."

Werner Baumann, Bayer’s chief executive, reinforced its commitment to producers, adding that "it is not our plan or our ambition or our intent to prevent farmers from having choice."

A Monsanto location in Ankeny.

The race to merge

The Monsanto-Bayer transaction comes as the agricultural industry and U.S. regulators digest a host of recent deals.

ChemChina and Syngenta — along with DuPont, parent of DuPont Pioneer, in Johnston, and Dow Chemical — are in the midst of their own deals. The $130 billion Dow-DuPont deal is expected to close this year. The companies say the merger could eventually bring more jobs to Iowa.

If these mergers are completed, the seed and chemical sector would be left with just four major players — including one owned by the Chinese government. Sen. Chuck Grassley, R-Iowa, and others fear the consolidation could lead to higher prices for farmers and less innovation.

Slumping farm economy spawns 'merger mania'

“I don’t think Iowa farmers are happy about the consolidation in the industry, but we understand the pressures and the costs” for seed and chemical companies to develop new products and get them approved, said David Miller, director of research at the Iowa Farm Bureau Federation and a corn and soybean farmer in Lucas and Clarke counties in south-central Iowa.

“Farmers want any of the appropriate regulatory agencies to do a thorough review of all the competitive issues that should be at play with the size of mergers and the amount of mergers that are happening,” Miller said.

The combination is expected to require approval from about 30 regulatory agencies around the world, including the United States, Bayer and Monsanto executives said Wednesday. The deal also will be reviewed by the Committee on Foreign Investment in the United States, formed in 1988 to consider the impact foreign purchases of American companies have on national security.

Grassley, chairman of the Senate Judiciary Committee, is holding a hearing Tuesday to examine consolidation in the seed and chemical industries.

"Federal antitrust regulators must be ever more vigilant to ensure a robust competitive environment in this important sector,” said Grassley, who farms corn and soybeans with his son in Butler County.

A Monsanto location in Ankeny on Wednesday, Sept. 14, 2016. The health and agricultural company Bayer announced it's acquisition of Monsanto today.

Will the deal go through?

Bayer agreed to pay Monsanto $2 billion if the deal is blocked by regulators. Executives said the companies have made substantial commitments to increase the likelihood of the deal closing, including a willingness to divest certain operations if required by regulators.

We are “confident we will obtain the necessary regulatory approvals,” said Bayer’s Baumann.

But Matt Arnold, an analyst at Edward D. Jones & Co. in St. Louis, said “management can sound as confident as they want” but cautioned that the consolidation in agriculture makes closure of the deal "literally a flip of the coin.”

Investors also expressed some skepticism. Monsanto's stock price rose just 66 cents, to $106.76, about 17 percent below Bayer's offer price of $128 a share.

Arnold said even if the merger takes place, it's far from certain how it will turn out for farmers.

"The glass-half-full and the glass-half-empty crowds both have plenty to talk about,” Arnold said. “Time will tell. There is a very good chance that superior products will come from this, but in exchange for that (farmers) give up a choice of vendor.”

Neil Hamilton, a law professor at Drake University, said it's unlikely Monsanto and Bayer will work with farmers to address their concerns. Their efforts will likely be focused on those entities that could stop the deal, including shareholders and regulators.

“I don’t know that they feel like they need to convince farmers of the benefits,” Hamilton said. “At the end of the day, whatever is going to happen is going to happen. I don’t know what farmers could do that would somehow prevent it.”

Contact Christopher Doering at cdoering@gannett.com or reach him at Twitter: @cdoering

A Monsanto location in Ankeny on Wednesday, Sept. 14, 2016. The health and agricultural company Bayer announced it's acquisition of Monsanto today.