Lady Luck BASF: The unexpected winner in the Bayer-Monsanto merger

Things played out better than expected for German chemical giant BASF as Bayer progressed in its monster Monsanto acquisition.
Unfortunately, not a celebratory cake.

Ludwigshafen-based BASF has become an unlikely beneficiary in Bayer’s acquisition of agrochemical giant Monsanto, which won European Commission approval Wednesday. BASF has harvested businesses Bayer had to sell off to win regulatory approval of the $62.5 billion über-acquisition and almost overnight leapt into the market for seeds and complementary chemicals, a business it had previously said it could eschew.

BASF agreed to buy Bayer’s soybean, rapeseed, cotton and vegetable seed portfolios as well its Liberty pesticide. The company will also gain access to a handful of Bayer’s digital agriculture activities. The series of deals still need regulatory approval and will cost BASF up to an estimated €8 billion but add as much as €2 billion in revenue and about €500 million in ebitda. Last year, BASF had sales of €65 billion and ebitda of €12.7 billion.

The Bayer-Monsanto deal is part of a broader reshuffling among the world’s biggest chemicals and agrochemicals businesses. Still independent, BASF is going up against multi-national behemoths such as Dow-Dupont, Chemchina-Syngenta and, now, Bayer-Monsanto that were all created through M&A. Bayer’s divestments will boost BASF’s agribusiness by one-third and includes the company’s biggest-ever acquisition.

22 p17 Agrochemistry market-01

It’s a complete shift in strategy. Unlike its competitors, BASF management always insisted it didn't need a seed division to be successful in the agrochemicals business. And so far they've been right, the agribusiness had operating profit of €171 million last year on sales of €5.7 billion, a slight increase from 2016. However, Bayer's numerous concessions to appease EU antitrust authorities to ensure approval for the Bayer-Monsanto deal created a vacancy. It became the perfect opportunity for BASF to enter the seeds market.

In addition to the newly acquired seed assets, BASF has a crop protection business and a biotech research unit, in which it has invested around €2 billion without any significant sales to show for it. It can now be used to flesh out the newly acquired seed business.

It's the perfect combination of luck and strategy. And in the new agribusiness order, BASF made out like a bandit.

Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. To contact the author: [email protected]