BASF to acquire facility in sweeping $9 billion deal
MUSKEGON — The path to closing the $66 billion mega-merger of Bayer AG and Monsanto Co. included the divestiture of chemical manufacturing operations in West Michigan.
To secure regulatory approval for the deal, the U.S. Department of Justice required Germany-based pharmaceutical and plant and animal health manufacturer Bayer to divest of assets that currently compete with agrichemical giant Monsanto. That includes Bayer CropScience’s Liberty herbicide business — a key competitor with St. Louis-based Monsanto’s Roundup product — that the company produces at a sprawling industrial complex at 1740 Whitehall Road in Muskegon Township.
Site Manager Harold Lofton confirmed to MiBiz that the Muskegon-area plant “is one of those assets that’s going to be divested.”
Germany-based chemical manufacturer BASF SE will pay 7.6 billion euros, or roughly $8.8 billion, for the CropScience facility, various seed businesses and other Bayer “agricultural solutions businesses and assets” as part of a negotiated settlement with the Justice Department. The all-cash deal with BASF “to remedy the competitive harm that would result” from the combination of Bayer and Monsanto is expected to close in the second or third quarter of this year, pending court and regulatory approval.
“We can’t speak on the plant’s status once it is owned by BASF at this point, but our expectation is that it will continue because Bayer does consider this a valued entity, integral to the success of their crop science business,” Lofton said.
Lofton said the CropScience facility, which employs 79 people, will continue running at full capacity as the deal with BASF progresses through regulatory approval.
Kate Thiel, a field crops and advisory team specialist at Lansing-based Michigan Farm Bureau, said the divestiture required for the merger to go forward should preserve the “competitive marketplace” and protect farmers’ interests.
“We have policy that speaks to … ensuring that there’s still competitive opportunities within the market space when it comes to any agricultural entity or company,” Thiel said. “(Farmers) have availability of products that are necessary tools within their toolbox that companies like a Monsanto or a Bayer would provide them from a crop-protection product or a seed product perspective.”
With Bayer divesting some of its businesses and assets, companies like BASF will be able to capitalize, Thiel said.
“That’s helping companies be able to have some of that competitive market and continue to provide tools that exist within those farmers’ tool boxes that are important,” she said. “We hope that there’s a competitive space and that there are competitive products — as well as prices from a seed and crop protection product perspective — that come out as a result of this.”
According to a statement from the U.S. Department of Justice, Bayer’s divestiture to BASF “will fully resolve all horizontal and vertical competition concerns” and “as a result, American farmers and consumers will continue to benefit from competition in this industry.”
The Justice Department characterized Bayer’s $9 billion divestiture as the largest negotiated settlement in American antitrust enforcement action history.
The settlement also includes provisions for certain intellectual property and research capabilities, including Bayer’s existing pipeline of research and development projects, plus “complementary assets that are needed to ensure that BASF has the same innovation incentives, capabilities and scale that Bayer would have as an independent competitor.”
Currently, BASF, the largest chemical producer in the world, has two sites in Michigan with 100 or more employees in Wyandotte and Southfield, according to the company’s website.
With the acquisition, BASF reports it will be able to tap into the more than $2 billion worth of annual sales generated by the affected agricultural businesses currently owned by Bayer.
The assets it will acquire from Bayer generated more than $644 million in combined earnings before interest, taxes, depreciation, and amortization, according to a statement from BASF.
“With our expanded portfolio across seeds and traits, chemical and biological crop protection, soil and plant health, and digital farming applications, we will have even more tools to support farmers,” Markus Heldt, president of BASF’s Crop Protection division, said in a statement. “When these transactions are completed, we will have more than 12,000 experienced employees working in agriculture to connect innovative thinking with practical action to help our customers increase their yields, crop quality and profitability.”
Lofton said the deal with BASF is a preferred outcome that should end up being a “very good” fit for all parties involved.
“If we have to be divested, I think BASF is the very best company to purchase us,” he said. “I know they are a strong, well-established German company, so I think it’s going to be very good for our site that BASF was the purchaser.”
After first being announced in May 2016, Bayer closed the Monsanto deal on June 7. Integration of the two companies will take place only once the divestiture to BASF is completed “in approximately two months,” after which it will operate under the Bayer name, according to a statement last week.
“We will double the size of our agriculture business and create a leading innovation engine in agriculture, positioning us to better serve our customers and unlock the long-term growth potential in the sector,” Bayer AG Chairman Werner Baumann stated.
The Bayer-Monsanto merger is the third such mega-deal to affect the agricultural industry since the start of 2017. It follows the Midland-based Dow Chemical Co. merger with DuPont Co. and China National Chemical Corp.’s acquisition of Syngenta AG in 2017.
Samantha DeCarlo, a chemist and international trade analyst at the U.S. International Trade Commission, wrote in an April executive briefing that the agrichemical industry has consolidated from roughly 70 manufacturers in the 1960s to just six producers by 2015, before the latest round of deals, which will leave just four.
The “drastic consolidations” have been fueled in part by companies seeking profitable opportunities in the seed market as biotechnology continues to advance, according to DeCarlo. Additionally, a move to protect intellectual property “made vertical integration in downstream industries more necessary,” she wrote.
Thiel of the Michigan Farm Bureau expects dealmaking to continue as the international agricultural products industry seeks further consolidation, which is cause for concern for the organization’s member growers.
“Particularly with reduced or suppressed commodity prices, it’s something that our members are concerned about and they’re going to keep a watchful eye on,” Thiel said. “We want to make sure that that competitive space is still available, that innovation continues to occur.”