Bayer and the Porsche Effect

Strategic move by Bayer to buy Monsanto.

Now, we know why Bayer decided to sell the material science part of the company to create Covestro: they simply wanted to buy Monsanto.

The cat is out of the bag and billion dollars question is: "Will it work?". For Bayer, this would definitely be a sucess if it works, but they are going to face two issues:

  • the regulatory issue, Bayer, Du Pont, Monsanto and Syngenta are the 4 big players, if Bayer buys Monsanto, the anti-trust regulations can kick-in and prevent them to buy Monsanto. This is not sure because a lot of small companies are providing fertilizers, crops, pesticides, fungicides and herbicides, but the global market share of the resulting entity would be 25% for the chemical part and 33% for the seed part. This at the global level, but it could be monopolistic in some regions of the world.
  • the Porsche effect. Porsche tried to buy Volkswagen in an under-cover all cash action, the resulting high-debt lead Volkswagen to buy-back Porsche for cheap. Bayer has a lot of debts, this could make it a nice target for yet another take-over.

The last point is the image. Monsanto in Germany is basically the devil but Bayer is a very well respected company. The green party in Germany is relatively strong, but stronger is the general green way of thinking of the german population. How the new Bayer will be able to overcome this image issue? Will Bayer be able to keep attracting great engineers? The oil an gas industry has difficulties in recruiting in Germany also because of the bad press it has, will this have an effect on Bayer too?

From a personal point of view, I do not think this will create better value for the people on the long run. It will definitely create better value for the shareholders, but for the farmers and the customers like you and me taking care of our garden, this is unlikely to have any real positive effects. Why? Because even if Monsanto and Bayer Crop Science are criticized a lot for their pesticides, they are already doing great research and development and the merging will not bring more innovation to these already highly innovative and active companies.

Created: Mon 30 May 2016
By Loïc d'Anterroches.

Tags: News
Archives: 2016 / May
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