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.
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.
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.