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Presentation by Werner Baumann
Ladies and gentlemen, good morning, and thank you for joining our conference call.
We are welcoming you today from the U.S. to pay tribute to an extraordinary event:
I am delighted to announce that earlier this morning we signed a merger agreement with Monsanto, one of America’s iconic companies, to combine with Bayer. And I am extending my utmost respect and a very personal welcome to Hugh Grant who is with us here today. He has kindly agreed to travel with Liam and myself to St. Louis later today to introduce us to his team there. Hugh and his team have built Monsanto into an outstanding business. Since our first announcement on May 23rd, the process that led us to today has been a great testament to the vision and mutual respect of all involved and especially down to Hugh, that we are now announcing such an agreement together, paving the way for a successful combination of our two great companies. Before I take you through the highlights of our agreement I would like to hand over to Hugh.
Thank you Werner and good morning.
This is a momentous development for Monsanto and our stakeholders. We have long discussed the value of an enhanced agriculture portfolio, and we are confident that this combination with Bayer will create a leader in Agriculture that will accelerate our goals as an innovator in the sector.
Our Board of Directors underwent a comprehensive evaluation process – alongside legal and financial advisors – to identify the most compelling value for our shareowners. We assessed a broad range of strategic options and opportunities, including a standalone path. Ultimately, the Board unanimously determined that a combination with Bayer represents the most compelling value for our shareowners, employees and, critically, the growers and customers that have come to rely on us.
I, and the rest of our Monsanto Executive Team and Board of Directors, believe that this combination with Bayer secures our vision to provide growers with the sustainable solutions necessary to meet the agricultural demands of today and tomorrow.
We are entering a new era in Ag – one in which growers are calling for new solutions and technologies to meet the challenges of the future. Bayer shares in our vision of sustainable agriculture and improving the lives of growers and people around the world.
And together with Bayer, we will deliver on that vision. We will increase innovation across the agriculture industry through enhanced research and development, driving a faster discovery rate and delivering a wider set of enhanced solutions to growers across the globe.
Before I turn things back over to Werner I’d like to take a moment to thank all Monsanto employees for their outstanding contributions to our organization. It is our people who have made this business great, and it is through their dedication, discipline and professionalism that we have the opportunity to grow as part of an organization that shares our values, our passion for innovation and our commitment to growers and customers around the globe. Thank you all.
Thank you Hugh.
In combining Bayer and Monsanto, we will create a global leader in the agriculture industry. Together we will help to deliver integrated solutions and prepare the industry for the next generation of farming. We have identified considerable potential for sales and cost synergies and we expect to create significant value for our shareholders.
The transaction represents a major step forward for our Crop Science business and will reinforce Bayer as a global, innovation-driven Life Science company with leadership positions in its core business segments.
Bayer has a strong culture of innovation and values to which we remain highly committed. Sustainability and corporate social responsibility are an integral part of our business model.
This transaction is a compelling opportunity for the shareholders of both companies. Following receipt of additional information and thorough analysis conducted during the due diligence process, we have raised our initial offer and have agreed on an all-cash consideration of USD 128 per Monsanto share representing a premium of 44 percent to the Monsanto share price of USD 89.03 on May 9, 2016, the day prior to our first proposal. The last twelve months EBITDA multiple is 18.6x as of May 31, 2016. For a more normalized view we provide the 2017 consensus EBITDA multiple of 16.5x given the current trough situation of the market. The transaction was unanimously approved by Monsanto’s Board of Directors as well as Bayer’s Board of Management and Supervisory Board.
In combining our two companies, we are well positioned to benefit from a cyclical upswing in the Ag market and we expect to create substantial value for our shareholders. We have identified significant potential for sales and cost synergies which was confirmed during due diligence. We expect earnings contributions from annual net synergies of approximately USD 1.5 billion after year three plus additional synergies from integrated solutions increasing over the years thereafter. The transaction is expected to be accretive to core EPS in the first full year after closing, with double-digit percentage core EPS accretion in the third full year after closing. We expect to earn our cost of capital on this transaction after year four.
As we have previously said, we plan to finance the transaction with a combination of debt and equity. The expected equity component of approximately USD 19 billion is expected to be raised through issuance of mandatory convertible bonds and through a rights issue with subscription rights. Bridge financing for USD 57 billion is ready and co-underwritten by five banks.
We are targeting an investment grade rating post-closing and remain fully committed to the single “A” credit rating category in the long term.
Looking ahead to our future as a combined company, we plan for the global Seeds and Traits and North American commercial headquarters to be in St. Louis, Missouri, the global Crop Protection and overall Crop Science headquarters in Monheim, Germany, and an important presence in Durham, North Carolina, as well as many other locations throughout the U.S., and around the world. Digital Farming for the combined business would be based in San Francisco, California.
We will work closely with regulators to ensure a successful close. To underline our confidence in the outcome of the regulatory process we have committed a reverse break-up fee of USD 2 billion and have made substantial commitments, including divestiture commitments, if required by the regulatory authorities. We will submit merger control and other regulatory filings and are confident that we will obtain the necessary regulatory approvals. Monsanto plans to convene a shareholder meeting in late 2016 or early 2017 to vote on the merger agreement. Closing of the transaction is expected by the end of 2017.
The acquisition of Monsanto is driven by our strong belief that this combination is a powerful response to the enormous challenges facing farmers and the Ag industry overall.
By 2050 the world’s population is expected to grow by an additional 3 billion people – this represents about six times the population of Europe today. Land per capita available to grow food, however, is expected to decline by around 17% during the same period. A significant increase in food production of 60% is required to feed the planet. Innovative solutions are a prerequisite to close the gap between food requirement and production level. The combination with Monsanto represents the kind of revolutionary approach to agriculture that will be necessary to sustainably feed the world, as we enable growers with a broad set of enhanced agriculture solutions.
The combination of Bayer’s Crop Science business with Monsanto creates significant strategic benefits. We will have a broad portfolio across indications and crops with enhanced customer access supporting further growth potential due to the complementarity of the products.
We are creating a company that can offer integrated solutions, from seeds and traits to crop protection to digital agriculture that help farmers manage the increasing global food demand. Immediately, we will benefit from our ability to offer a broader variety of Seeds and Traits and Crop Protection products, and from the smart combination and usage of products based on agronomic science. Furthermore, we would create a leading platform in Digital Farming.
In bringing together these two businesses we will create a leading innovator with a strong R&D technology platform and a broad pipeline across Seeds and Traits, Crop Protection including Biologics. The combined businesses’ innovation potential will be extraordinary and, in turn, could support farmers around the world to close the productivity gap in agriculture. Both businesses are highly complementary regarding segments and geographies.
With that I would like to hand over to Liam Condon.
Together, Bayer and Monsanto will have the capabilities and resources to offer farmers truly integrated solutions by combining three areas of expertise: Seeds & Traits, Crop Protection including Biologics, and Digital Farming. Our strong technology offerings will enable Farmers to receive the solutions they need, and advice on when and how to apply them.
The combination of our two organizations allows us to bring a wide range of benefits directly to farmers, in both the short and long-term.
In the short term, we will have the ability to offer farmers a broader variety of seeds and crop protection products, and by using Bayer and Monsanto’s sales forces and infrastructure, we can reach farmers in more places with more products and services. Mid to long term, the combined company plans to provide growers with integrated solutions based on the smart combination and optimized usage of products, agronomic advice through digital agriculture solutions. In the future we plan to develop integrated systems based on technologies optimally designed to work together.
These all result in significant and lasting benefits for farmers: from improved sourcing and increased convenience in the short-term, to improved yield with optimized inputs in the mid to long-term. And importantly, they support farming in a more efficient and sustainable manner.
The combined offering is expected to enable us to address farmers’ needs across crops and indications even more comprehensively. This slide shows a Soybean plant lifecycle in Brazil. This example demonstrates that together with Monsanto we will be able to offer dedicated products for each step along the life cycle of a soybean plant. The set of innovative technologies combined with season-long advice will help farmers to optimize inputs with a corresponding improvement in yields.
The benefits of a comprehensive portfolio are not just theoretical.
We already have a blueprint for how our combined and complementary product portfolio of solutions will be advantageous for farmers.
Take Canola as an example, with our wider range of products, we can offer farmers’ innovative solutions throughout the crop cycle: High quality seed varieties provide access to the farmer, whose various needs are then addressed through a complete crop protection and services portfolio for seed treatment and weed, pest and disease control.
We see significant growth potential for this concept across the combined Bayer Monsanto portfolio.
The combined technologies of Bayer and Monsanto will enhance our ability to provide farmers with integrated solutions for commercially important crops like corn and soy.
These broad acre-crops account for about 40% of the global agriculture business. With strong positions across all relevant technologies, Bayer and Monsanto combined will be well positioned to provide farmers with integrated solutions they need, now and into the future.
Through an interdisciplinary approach, we are convinced that we will be able to develop more innovative and sustainable solutions based on an integrated systems approach across our chemistry, biological and data science technology platforms. This approach will have significant benefits for farmers by leading not only to more, but also to faster innovation - for example by taking a parallel instead of sequential approach to development.
As a concrete example, based on such an integrated approach, new, resistance breaking herbicide tolerance systems may become available that are based on optimal parallel development of traits, herbicide chemistry, and high quality germplasm, all of which are available within our soon-to-be combined organization.
The combination of Monsanto and Bayer in Digital Farming has the potential to bring this transformation to life. For instance, at Bayer we are using satellite imagery to detect disease patterns at a very early stage and give more tailored recommendations so that farmers can spray the right part of the field early on and not the entire field too late. Amongst other things, Monsanto helps farmers optimize their daily decision making with field-level weather information so that farmers can make field management decisions with confidence.
Our longer-term vision is an outcome-driven value proposition: we are not simply selling farmers seeds, traits and crop protection products but optimized field-level prescriptions to improve on-site decision making and execution. In the future, we should be able to offer outcomes based solutions, e.g., a disease-free acre or maybe even a yield guarantee, to give two examples.
Both companies are built upon a commitment to and belief in the importance of innovation and sustainability that not only allows us to succeed in our field, but also enables us to help solve some of the world’s most pressing issues in Ag through our combined complementary skills in R&D.
We at Bayer have a leading position and expertise in crop protection R&D while Monsanto focuses in seeds and traits. So jointly we will have significant capabilities with around 10,000 employees in R&D and a strong technology platform. Our combined pro forma R&D investment will amount to around EUR 2.5 billion. The combined R&D pipeline is expected to enable us to better serve growers our customers and address their challenges and needs with tailor-made solutions across crops, indications and technologies.
With that I would like to hand over to Werner.
A combination of Bayer and Monsanto represents an attractive value creation opportunity. The combined Ag business is a premium asset which has the potential to command a premium valuation. Together, we will draw on the collective expertise of both companies to build a leading agricultural player with advanced innovation and R&D capabilities, to the benefit of farmers. We expect significant near-term synergy potential and in addition substantial longer-term synergies from integrated solutions. As a result, we expect stronger growth, better profitability and a more resilient business profile.
Both Monsanto and we at Bayer are absolutely convinced that the combination of our two complementary businesses has a compelling logic and creates value in a major way.
It is a synergistic case which has the potential to achieve a premium valuation based on improved profitability, strong earnings accretion and enhanced earnings growth.
Overall we believe this is a highly value accretive transaction which benefits not only the shareholders but also our customers, employees and all stakeholders involved.
That concludes my remarks. Thank you for your time.
We will now be happy to take your questions.
Cautionary Statements Regarding Forward-Looking Information
Certain statements contained in this communication may constitute “forward-looking statements.” Actual results could differ materially from those projected or forecast in the forward-looking statements. The factors that could cause actual results to differ materially include the following: the risk that Monsanto Company’s (“Monsanto”) stockholders do not approve the transaction; uncertainties as to the timing of the transaction; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all and to successfully integrate Monsanto’s operations into those of Bayer Aktiengesellschaft (“Bayer”); such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the transaction; the retention of certain key employees at Monsanto; risks associated with the disruption of management’s attention from ongoing business operations due to the transaction; the conditions to the completion of the transaction may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; the parties’ ability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the impact of indebtedness incurred by Bayer in connection with the transaction and the potential impact on the rating of indebtedness of Bayer; the effects of the business combination of Bayer and Monsanto, including the combined company’s future financial condition, operating results, strategy and plans; other factors detailed in Monsanto’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) for the fiscal year ended August 31, 2015 and Monsanto’s other filings with the SEC, which are available at http://www.sec.gov and on Monsanto’s website at www.monsanto.com; and other factors discussed in Bayer’s public reports which are available on the Bayer website at www.bayer.com. Bayer and Monsanto assume no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.
Additional Information and Where to Find It
This communication relates to the proposed merger transaction involving Monsanto and Bayer. In connection with the proposed merger, Monsanto and Bayer intend to file relevant materials with the SEC, including Monsanto’s proxy statement on Schedule 14A (the “Proxy Statement”). This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, and is not a substitute for the Proxy Statement or any other document that Monsanto may file with the SEC or send to its stockholders in connection with the proposed merger. STOCKHOLDERS OF MONSANTO ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain the documents (when available) free of charge at the SEC’s web site, http://www.sec.gov, and Monsanto’s website, www.monsanto.com, and Monsanto stockholders will receive information at an appropriate time on how to obtain transaction-related documents for free from Monsanto. In addition, the documents (when available) may be obtained free of charge by directing a request to Corporate Secretary, Monsanto Company, 800 North Lindbergh Boulevard, St. Louis, Missouri 63167, or by calling (314) 694-8148.
Participants in Solicitation
Monsanto, Bayer and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the holders of Monsanto common stock in respect of the proposed transaction. Information about the directors and executive officers of Monsanto is set forth in the proxy statement for Monsanto’s 2016 annual meeting of stockholders, which was filed with the SEC on December 10, 2015, and in Monsanto’s Annual Report on Form 10-K for the fiscal year ended August 31, 2015, which was filed with the SEC on October 29, 2015. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Proxy Statement and other relevant materials to be filed with the SEC in respect of the proposed transaction when they become available.