Bayer’s $88b Monsanto merger bites Aussie cotton R&D

Two weeks before the $88 billion buyout deal was confirmed last Wednesday night Bayer quietly pulled the pin on its genetically modified (GM) cotton seed development work, raising questions about the deal’s impact on commercial research and development.

Bayer CropScience notified industry of its R and D bail-out on September 9 – just days before its head office in Leverkusen informed the market of its latest Monsanto offer being accepted.

Up to six of BayerCropscience staff in Australia are understood to be facing redundancy – effective by the end of the year.

Bayer’s development programs in other major cotton-growing countries Brazil, India and the US have also apparently ended.

The company’s Australian management has refused to talk about the merger or the future of any plant research programs, instead referring to official statements released in Germany last week.

“Legal restrictions mean we cannot provide any local comment about the merger announcement or what it means in Australia,” said Bayer Australia communications manager, Lachlan Bird.

Asked about the cotton project cuts occurring prior to the merger announcement, Mr Bird simply said he was “unable to comment about that”.

“We’re not avoiding the (Australian market) questions or being tricky – we’ve been advised we can’t say anything because the merger is such a macro development,” he said. 

US and European regulators will carefully scrutinise the proposed deal for monopoly impacts to industries where the two companies compete in the same markets.

The seed business is cited as a major stumbling block, which may force a sell-off of strategic assets.

Some in the industry are speculating Bayer dropped its cotton research to help alleviate potential conflicts of interest.

Bayer is a major player in Australian agricultural R and D covering canola, wheat, cotton crops and animal health products.

It runs extensive farm trials across the eastern states and a has a $15m wheat and oilseed plant breeding centre officially opened at Horsham in Victoria in 2014. 

Bayer’s business is also huge in the pharmaceutical market – including being responsible for modern products Aspirin and Alka-Seltzer – but the merger will make it one of the world's biggest agribusiness conglomerates.

The new company could preside over roughly a quarter of the world's seed, pesticide, herbicide and fungicide supplies.

Bayer's total sales were 46.3b euros last year, about 30 per cent of which came from its crop division, while Monsanto’s total sales were worth almost  $20b.

On a call to investors last week, Monsanto’s chief executive, Hugh Grant, acknowledged the deal’s potential regulatory hurdles. 

Both the companies’ seed business were an obvious area of concern for the deal, but Mr Grant was optimistic about regulatory approval for the takeover, saying “overlap (with Bayer) is quite small, with a few obvious exceptions”.

Head of Bayer's Cropscience division, Liam Condon, said his company was "pretty confident" the deal would be approved by regulators because both companies have "highly complementary" product lines and geographic offerings.

"We have very, very little overlap,"  he said.

Managing director of northern NSW cropping enterprise Australian Food and Fibre (AFF), Joe Robinson, was “disappointed to see any research that may produce high-yielding product varieties discontinued”.

Bayer has committed to pay Monsanto a $2.65 billion antitrust breakup fee if the global merger is rejected by regulators.

The all-cash deal is valued at about $170 each for Monsanto shares, making it the biggest all-cash buyout in history. The US Senate will review Bayer’s merger bid.