Perrella on Bayer Agreeing to Buy Monsanto (Audio)

time when crop prices are dropping? Doesn't that mean that farmers have less money to spend on the very products that buyer is looking to acquire. Oh, that's a good point, Pim, and I think the key here is to U to give farmers and all in bundle of seeds and crop chemicals. Uh, serve up an agronomic solution of farmers that you can package and sell out and drive sales growth that way, while the mark waits for crop prices to improve and

thus the outlook for all these companies to improve. So uh, it's uh, well, just let's start with some of the nuts and bolts. The deal A good deal, I guess it's a good deal in the basics sense. It's going to get done. And there's been quite a bit of back and forth. Right, it does here that it's going to get done. Um. Some of the risks so behind the deal a lot of debt that has to go out.

Buyer has to do some heavy lifting to finance this thirty nine billion in debt nineteen billion and mandatory convertible bonds and rights issues. Um. And if they can maintain investment grade rating, which is going to be a key to the deal, I think that helps them. Maybe uh with the ECB and their corporate bond purchase program that might that might also come into play as part of this deal as well. Well. Perhaps what they could do is they could actually sell the bonds directly to the

European Central Bank. Right, quite quite possible with the disclaimer that I am not a credit anim us in Europe, but that that that does seem like a reasonable suggestion. All right, So now go into a little bit of detail in terms of the businesses that will be combined and what the future company might look like. Right. So from the egg perspective, which is the focus of this deal, you have Munsano, the leader in biotech seeds um and buyers number three in the crop chemical world, So you're

combining seeds and sprays. But what it really does is that farmers care about it. In turn, regulators care about is it gives it. It's it's yield in the field for farmers. UM Whether you develop a biotech seed that helps the plant grow better or that fights off disease or pesticides, or if you develop a chemical that does

something similar doesn't matter to the farmer. It's it's all about driving yields for the farmer, and regulators probably will look at it from from a similar perspective In terms of um. Seeds and crop chemicals really do compete against each other. It's just a different avenues to to get that yield. Uh, and higher yields higher income for the

farmers out in the field. Now that being said, those two businesses put together, combined with buyers existing farm of business, it's it's basically the company is going to be half pharmaceuticals and half a can biotech seeds, which raises a number of questions about the long term viability of of of a model like that. So, uh, the big picture that some are framing is that this is something that is going to reshape the farming industry a whole new way of doing things. Uh, do you buy onto this

or is that? Is it really going to be that much of a kind of landmark deal to make a new kind of approach here. Um, it's not a new kind of approach. It's the the ongoing evolution. So I wouldn't say that it's a a leap forward so much as it it's the way that the market seems to

be heading. With Syngenta pioneering the model a few years back they started combining the seeds marketing, the seeds and the chemicals, UM Down and do Pont getting together to create all three companies out of two but one of which will be an exact lookalike with seeds and crop protection chemicals put together. It's it's an evolution in terms of R and D where the the they're developing seeds now that respond or that are tolerant of of certain chemicals.

So you're you're locking in a farmer not only to the seed, but then that seed is locking in hopefully your own chemical that the farmer is going to have to use on that. That raises another regulatory issue down the road as well. But all these all these are driving yield in the field for the farmer, and then sort of the evolution of the business is where where

it's headed. Is there a possibility that regulators will come back and say, even though there's not a lot of overlap in the business of Buyer and UH and Monsanta, that the combined company is going to account for thirty percent of global crop inputs business, and that they just

will not allow that. Inasmuch as we've seen these other as you describe previous giant chemical deals right right, and and people should note that Monsanto Buyer is number four in the line of chemical deals, behind Keim China's and gentadpot and Pottish Corporate Agrium in the fertilizer space as well. UM. Some areas that that would probably engender regulatory scrutiny right off the bat would be US cotton seed, where buyer actually bought its cotton seed business from Montsanto about a

decade ago. UH Canola, some swaving oils and and there's some some crop chemical overlap as well. And then that also raises the regulatory um outlook of looking at these deals in total, all four deals going off at the same time, how does that reshape the market, and you do raise a very very good point about the entire global crop input market being UH controlled by one player there at that point. So there's a lot of a

lot of question marks, UH from a regulatory perspective. With the steel where do you see the most growth for this company? UH? Monsanto of course has UH I'd say for people who are concerned about things like gene and genetically modified organisms and crops, Europeans seem to be have kind of led the way on on that one. Is

it less of an issue in Asia? In Africa? The concern about round up it's herbicide UH glyphosphate, right, the trade name is round up continues to spark not only opposition from opponents of GMO, but more and more health and environment environment experts globally are jumping on the bandmag and at some point does that catch up with this company. There's a great, great point, a very important issue there.

The um, the growth um. Depending on the country and depending on the politics of the country, the growth of biotech seeds is either embraced or of the complete opposite of that um, depending on the region and how how much they need UH. The the input, the yield there from from the seeds. Um So, it's it's going to be continue to be a good growth story or the driving growth story is really the adoption of biotech seeds

and the upgrading of those said seeds. UH. The roundup product is the most applied herbicide in the in the world, and it is UH Monsano seeds are basically any genetically modified seed and I'm generalizing a little bit, UH is tolerant of that herbicide. It's a it's a key UH input in the global agg business. And it's that it's been that way for almost twenty years now at this point. Um So, there there is pushback and it depends on the region, but it's it's going to be a continued

growth driver for this new company going forward. Have we seen this type of consolidation before in the chemicals industry? Uh? This is UH this is sort of a unique time in the chemicals industry in the last year or so, UM not that I can remember. It's been a while UH for for this level of consolidation. But as as growth slows and people are looking for better ways to put their balance sheets to work, cheap debt and slow growth, I think it's a resulting in this wave of mergers here?

And what are you hearing from analysts beside yourself? You're certainly an analyst Bloomberg Intelligence, But what what? What is this sort of the consensus or is there a consensus on the street? Um? I think the the street consensus could could be characterized as a coin flip between people that like the deal and don't like the deal, So that I guess the consensus is there's an even lack of consensus on the street as as to the the merits of the deal and who's getting the better of it.

A lack of consensus for a sixties six billion dollar deal for mont Santo and UH and buyer. Is there anybody left? I mean, every now and again I hear be a SF might have been interested in a bid for Monsanto? Is there anybody left left to buy? Um? Not really, you would have to go much smaller in scale among the crop chemical companies, UH and the fertilizer companies to where these deals are taking place. B A

s F has gone it alone. They actually have a an R and D relationship with Montsanto, which I guess they'll now have with their their fellow countrymen down the road. There UM once those deals consummated. But there's there's only really three or four large players of a global scale in the market, with a sort of a mere mid tier UH to follow. But there's not much left, all right, Christopher Prela, you certainly covered that story up one side

and down the other. Buyer agreeing to buy Monsanto in a sixty six billion dollar deal will be the largest take over the year if it goes through. I'm Cafe Mason, pim Fox, and this is Bloomberg.