Recommendation for a report

Executive summary

This report provides a detailed analysis of the market reaction on the integration of Monsanto into the Bayer Group,  and implications of substantial announcements to the value of the company, in particular, the review of the post-acquisition announcement about legal remedies resulting from jury verdict in California. Media reaction is investigated as well as immediate market reaction and consequences to the value of the company. Result of the data analysed showed that among main outcomes of mergers and how acquiring Monsanto affected Bayer. The reports finds that even though the Monsanto always have had an evil image, the Bayers acquired it bidding the highest per share in the history and being one of the most controversial decision ever made. The report documents the evidence of substantial gains for target companies and a small gain or loss for bidder companies, change in corporate governance, value increase and gains in target returns  (Uygur et al, 2014). The report finds the prospects of the Monsanto-Bayer in its current position is not positive. It has further concluded that the media and market reaction has not been supporting the company. The rapid fall of market value of the group demonstrates that there could be further financial implications. The crucial areas of weakness require examination and remedial action by management. Recommendations discussed include:

 Introduction to Monsanto and its acquisition to Bayer

Founded during 1901, Monsanto was first known as the company producing artificial sweetener saccharin (MarketLine, 2018). However, during 1920s Monsanto expanded into primary industrial chemical and became the topmost producer of US chemical companies by 1940s (GMWatch, 2018). The company was even ranked 5th in the EPA’s (Environmental Protection Agency) list of chemicals for generating the total hazardous waste including synthetic fibres and plastics, including polystyrene. Today, Monsanto Company (Monsanto or 'the company') along with its subsidiaries is known as the global provider of agricultural products for farmers. The company having headquartered in St. Louis, Missouri, the United States, it carries its operations in multiple countries like America, Australia, Asia-pacific, Europe and Africa.

The company’s products are divided into two major segments: Seeds and Genomics; and Agricultural Productivity. The company's products offer seeds, biotechnology trait products, herbicides, and digital agriculture. The Monsanto’s strong brand identification enables it to have a leading position in various countries. Its most popular brands include Roundup, DEKALB, Asgrow, De Ruiter, Deltapine, and Seminis. Monsanto has been enjoying easy market piercing in its new geographical locations based upon its brand image. That is the reason why, despite Monsanto’s long list of wrong deeds, Bayer ( a German multinational pharmaceutical company) decided to merge with Monsanto. Bayer and Monsanto first announced the $US60 billion deal in September 2016, saying the move would boost agricultural research and innovation. The $128 a share deal, up from Bayer's previous offer of $127.50 a share, is the biggest of the year so far and the most substantial cash bid on record.

On the first day of spring 2018, the European Commission conditionally approved the planned takeover of Monsanto by Bayer, knowing that it would undoubtedly be the one of the most controversial decisions in its career. Environmentalists and farmers were afraid that too much power will be concentrated in the hands of one company.  They knew somewhere that after the acquisition of Bayer-Monsanto, the giant company will gain the absolute control over the farmers, destroying small procedures. While acquiring Monsanto, the president of Bayer, Werner Baumann promised to help farmers around the world to cultivate more nutritious food together with Monsanto. The company’s main objective for this decision was to become powerful enough to produce more for less and help feed an additional 3 billion people by 2050.

Bayer alone as a company used to be one of the brands that consumers trusted the most.

However, Monsanto is mainly known for its bad reputation not only among environmentalists, activists and alter globalists in such a way that  probably no other company in the world has. Especially after the very recent scandal of Monsanto , not only the company had to suffer further image damage because of it  but even Bayer also had to pay a huge price for it.

What went wrong ?

The California court convicted Monsanto, the producer of Roundup, for payment of $ 289 million in damages to a gardener who is now terminally ill with cancer due to long-term exposure to this herbicide containing glyphosate, as research has shown. Glyphosate is now been classified as a potentially carcinogenic agent by World Health Organisation (WHO) in 2015. The chemical is even banned in some of the countries such as France, Italy, the Netherlands, Belgium through the introduction of laws restricting the sale of chemical products with glyphosate.

46-year-old Dewayne Johnson, the father of two children, says that while working as a gardener for school institutions in the San Francisco district, he often used the herbicides Roundup Pro and Ranger Pro from 2012-2015 produced by Monsanto.The court ruled that the herbicide producer did not put a warning on the packaging against the possible effects of this agent, which became an "important cause" of Johnson's disease and made him to suffer from non-Hodgkin's lymphoma. Johnson’s doctors clarified that Johnson had already been regularly using their Roundup product for 2 years when he first noticed rashes in his skin.

Monsanto, which had already become a unit of Bayer AG during the trail tried to defend its products by trying to prove that it does not cause cancer. However, German chemical and pharmaceutical giant Bayer AG received a sharp blow after it was convicted by a jury in 2018 for failing to warn of the carcinogenic dangers in its product..

the current situation of Bayer-Monsanto

After the scandal, the company’s market valuation was dropped by almost 10% on a daily basis. This translates the company into the loss of around EUR 9 billion which is mainly due to Monsanto’s sufferings due to which Bayer will have to pay damage fees reports Reuters.

Currently, Monsanto is preparing to appeal, and, according to the official position of Bayer, in their recent statement, Bayer believes court ultimately will find that Monsanto glyphosate were not responsible for Mr. Johnson’s illness”  (Bayer, 2018)

Market reacted to the news immediately by crashing share price and wiping 12 billion Euros (about 20% of the total value of acquisition).

Money managers were already cautious about Bayer, and the shares were trading at discount since the end of 2017, since the news about possible merger got confirmed by both parties. But few were prepared for this. Bayer shares fell to as a low as 80.37 euros in European trading. Just two months ago, a group of banks underwrote a 6 billion-euro rights offering at 81 euros a share to help finance the Monsanto deal. Back in 2016, Bayer sold 4 billion euros of mandatory convertible bonds with a minimum conversion price of 90 euros. (Bloomberg, 2018). Bloomberg analysts suggest that it is quite possible that Bayer made a terrible miscalculation in buying Monsanto.

As per the Bayer’s annual report 2017 was a year of ups and downs. Over the course of 2017, Bayer stock delivered just over seven percent, which was less than the DAX and the Euro STOXX 50. The ongoing regulatory process for the planned Monsanto acquisition certainly played a role here.