Open HouseDate: October 27, 2017
Join us as we celebrate the new partnership between Key Cooperative and LRI.
It’s November, and 2016 is heading for the finish line. And most folks in ag will probably be glad to see it go.
But before we completely close the book on 2016 for agriculture, let’s take one last look back at some of the biggest stories that took place during the year. And boy, there were several whose impact will likely linger for many, many years to come.
Ask anyone who regularly does business in agriculture what letter immediately comes to mind when you mention the overriding trend word in 2016 and they will most likely say “C.” But despite some conventional wisdom, this wouldn’t start the word “commodities.” Instead, it would begin the word at the forefront for everyone in agriculture these days — consolidation. And this was particularly evident among the industry’s crop protection product producers.
Since the early 2000s, the crop protection industry globally has been dominated by six large players — the so-called “Big Six.” This group included Monsanto, Bayer CropScience, BASF, Dow AgroSciences, DuPont Crop Protection, and Syngenta. And also since that time, at the end of each year, many market watchers have predicted that this group would eventually shrink through mergers and consolidations into a “Big Four or Big Three over the next 12 months or so.” This predication had yet to come true.
Until 2016, that is.
The year began with word that Dow AgroSciences and DuPont Crop Protection were entering into a “merger of equals.”
According to financial analysts, the combined Dow-DuPont will have market capitalization of more than $130 billion. The combined Dow-DuPont’s agricultural group would have a very big impact on the crop protection and seed categories. In the crop protection sector, Dow-DuPont would control a 17% share of the global market sales, slightly behind Syngenta and Bayer at 21% and 20%, respectively. And as far as seed sales go in the U.S. market, a combined Dow-DuPont would own a 41% share in corn seed and a 38% in soybean seed, outpacing No. 2 Monsanto by 5% and 10%, respectively.
Still, this deal isn’t a slam-dunk according to many analysts. Regulators in the U.S. and the European Union (EU) in particular were taking a “hard look” at this proposed union with no firm decisions being made “at least until February 2017.”
Then, the pursuit of Syngenta began in earnest. First, Monsanto put in a few bids, but nothing ultimately came of these efforts. Instead, in February, China National Chemical Co. (ChemChina) agreed to acquire the Swiss seeds and crop protection products giant for $43 billion. Still, there were regulatory hurdles to be overcome to make the deal a reality, including security concerns in the U.S. However, in August, the two companies received clearance on their proposed transaction from the Committee on Foreign Investment in the U.S. Now, according to both ChemChina and Syngenta, the merger deal should be completed by the end of the year.
Last but not least, in a somewhat ironic twist, Monsanto ended up going from being a pursuer to being pursued itself. All throughout the summer months, Bayer CropScience actively tried to acquire the St. Louis, MO-based crop protection/seeds giant. These initial bids were rejected, but the two companies kept talking.
Finally, in September, Monsanto’s Board of Directors announced to the world it had accepted Bayer’s revised offer of acquisition. With this deal, Bayer is paying $66 billion for Monsanto — equivalent to $128 per share — in an all-cash transaction financed through debt and equity. This represents a 44% premium over Bayer’s original offer to acquire Monsanto first proposed on May 9.
“We are pleased to announce the combination of our two great organizations,” said Werner Baumann, CEO of Bayer AG, in a conference call with the world’s media held on Sept. 14. “This represents a major step forward for our Crop Science business and reinforces Bayer’s leadership position as a global innovation-driven Life Science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees, and society-at-large.”
In terms of the combined company’s corporate structure, Bayer-Monsanto will have its global Seed & Traits and North American commercial headquarters in St. Louis. The global Crop Protection and overall Crop Science headquarters will be in Monheim, Germany. The company will also maintain an important presence in Durham, NC, as well as digital farming activities in San Francisco, CA. According to Baumann, the combined companies expect to realize $1.5 billion in savings after year three from the deal’s close, which is expected to take place by the end of 2017. Overall, a combined Bayer-Monsanto would have annual sales in the $26 billion range — compared with approximately $15 billion for both the Syngenta-ChemChina and Dow-DuPont pairings — split almost evenly between crop protection products (55%) vs. seed and traits (45%).
However, as with the proposed Dow-DuPont pairing, many market watchers expect global regulators to take a long look at the Monsanto-Bayer deal.
Outside of the crop protection company arena, many other agricultural-based entities also decided to get in on the consolidation game in 2016. In mid-September, Canadian fertilizer giants Potash Corp. of Saskatchewan Inc. and Agrium Inc. announced that the two companies had agreed to a merger of equals following a few weeks of preliminary talks. The newly combined company will be the largest crop nutrient supplier in the world with revenues in the $36 billion range. In the North American marketplace, the newly merged company would control nearly two-thirds of the potash capacity, 30% of phosphate production, and 29% of nitrogen capacity. And since both companies are Canadian-based, analysts predict regulators in the country are not likely to object to the pairing. Right now, this deal is expected to be finalized by the middle of 2017.
According to reports, Potash shareholders will own approximately 52% of the new company with Agrium shareholders holding the balance. The company will be headquartered in Saskatoon, SK, and lead by Agrium Chief Executive Chuck Mango with Potash CEO Jochen Tilk serving as Executive Chairman.
Then there was plenty of consolidation activity at the cooperative level. In April, Landus Cooperative was established with final merger agreement signed by farmer board members of Farmers Cooperative Co. and West Central Cooperative. The new company is a farmer-owned agricultural cooperative, headquartered in Ames, IA, that has a global reach and a local touch with more than 725 full-time employees at locations in more than 70 communities in Iowa and Minnesota and approximately 7,000 member-owners.
In addition to Landus, other cooperative mergers in 2016 included Central Valley Coop in Owatonna, MN, joining up with Watonwan Farm Services in Truman, MN, and Sunrise Cooperative merging with TruPointe Cooperative in Ohio. Just before the end of summer, word broke that the board of directors for Heritage Cooperative, West Mansfield, OH, had entered into negotiations to possibly merge with Agland Co-op, Inc., based in New Philadelphia, OH. If combined, the new cooperative would have more than 50 locations throughout the Midwest and service almost 6,000 grower-customers.
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