Late last week, the extended courtship between Bayer and Monsanto, which saw the dowry offer raised four times by Bayer, resulted in a $127.50 per share all-cash offer for Monsanto, which Monsanto’s board accepted. A whopping $66 billion in all — one of the largest all-cash acquisitions, ever.
Reactions to the deal fall into three categories.
1. Those opposed to Monsanto’s business activities, which generally opposed the deal on philosophical grounds.
2. Those who buy in to the thesis that a combined company with a bundled product offering in seeds and pesticides would be a winner for growers and for investors. Not to mention fatter shareholder returns through economies of scale and reduction in competition.
3. Those who wonder how the appetite for R&D and innovation will be maintained, with bigger and less flexible global entities, and fewer strategic investors to provide investment and exits for young companies with hot technologies.
The Philosophical Perspective
Zen Honeycutt, Director of Moms Across America offered a typical response based on the principle of the proposed combination. She said, “With the ever growing evidence of the contamination of our water, food, breast milk, beer, wine and now vaccines by the chemical glyphosate, Monsanto’s mainstay product, we do not think it behooves Bayer, known for medicines to take care of people’s health, to complete this deal of purchasing Monsanto. Chemical companies which make us sick, owned by pharmaceutical companies which are supposed to make us better, is immoral and must be stopped.”
On the other hand, the U.S. Environmental Protection Agency this summer published its official classification of glyphosate as “Not Likely to be Carcinogenic to Humans.” This determination is the published conclusion of EPA’s Cancer Assessment Review Committee (CARC) and is based on the overwhelming weight of evidence on glyphosate. The CARC report is publicly available on EPA’s glyphosate docket.
The Financial Perspective
Here, there are believers and skeptics.
The believers are led by Bayer. They passionately took the view that a closed innovation platform would be beneficial to growers — noting that seeds and pesticides need to work together, and that the best way to optimize each was through a harmonized R&D approach
The skeptic view was best summed up by BASF, the world’s largest chemical company and number three in the agrochemical sector.
Markus Heldt, the head of BASF’s crop protection business, told Fox Business, “Farmers don’t want to lock into any particular combination of seeds and crop chemical at an early stage. You can sell the two in the bundle, but only if you happen to have the best product in each category. Not even the biggest companies could secure such a dominant position.”
In the end, it’s Apple vs Google. Apple believes in a closed system where products are designed to work together and, through world-class innovation, can justify extravagant margins because of their high functionality and ease of use. So, software and hardware are bundled, always.
Conversely, Google develops software, more or less, and generally leaves devices such as laptops, tablets, phones and players to everyone else. Microsoft generally avoids hardware as well — contending that the world is better served by more open innovation platforms.
The Innovation Perspective
A former venture capitalist himself, Benson Hill Biosystems CEO Matt Crisp had this to say.
“Bayer paid a premium to finally close the deal for industry goliath Monsanto, creating a potential domino effect of transition within the agriculture industry. This deal is part of a broader round of consolidation stemming from a commodity down-cycle and shareholder pressures throughout the industry. Paradoxically, Monsanto ignited the frenzy to consolidate with its unsuccessful pass at Syngenta, which is now in the process of closing a sale of the company to ChemChina.”
“One clear outcome of this round of consolidation in big ag will be further reductions in R&D spending. While large companies’ model of innovation has served to aggregate large amounts of data and bring new technology to the marketplace, it also has served as a barrier to entry for smaller companies interested in developing more choice for farmers.”
“Unless we rethink our approach to ag innovation, the acquisition of Monsanto by Bayer ultimately will mean less choice for growers, less economic opportunity for rural communities and less resiliency in our global food system. Recent advancements in cloud computing and big data analytics are opening up a new era of opportunity where companies compete not based on their size, but on how well they understand and meet the needs of growers and ultimately the consumers they serve. The time has come to refresh our thinking about innovation in our food system and empower a more diverse community to advance agriculture.”
The Bottom Line
Overall, we think it’s bad news for growers and their customers. Although we regard the philosophical objections as generally unfounded, and acknowledge the opportunities for investors in product bundling, we think BASF is right. No one wants bundles unless they are the top product, forever, on both sides of the seeds and pesticide equation.
Further, we think that fewer investors, fewer exits, and slower transnational behemoth companies will cause R&D to stumble along for some time before finding a new workable business model for tech development. It’s never a good time to slow down on innovation — and certainly not at a time when climate change and sustainability offers more opportunity and challenge for new tech than ever.
For those in the R&D space, the answer is more collaboration, more alternative common platforms, more transparency, more public/private partnership, and all on a more global scale. So, collaborative technologies like Benson Hill’s CropOS may, as a result, find itself in a big uptick in interest. Especially as mid-size and smaller players try to compete head to head with the new Bayer leviathan.
Many harpoons from many players working together in partnership — that was the technique for attacking Moby-Dick, the great white whale — and Melville’s novel may become required reading for those who want to survive and thrive amidst the thrashing monsters in the newly bigger, deeper Big Water.
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