The Most Controversial Over 62 Billion Possible Merger

For thousands of years, farmers have been breeding, saving, replanting, and freely exchanging seeds. In the past century, breeders developed new crop varieties for farmers around the world, resulting in plants adapted to various cuisines, geographical regions, soil types and weather conditions. However over the last few decades, just five companies have acquired the majority of the world's seed supply: Monsanto, DuPont, Syngenta, Dow and Bayer. In the 1980s, appeared the first patents on seeds that dramatically increase use of pesticides the companies also sell, and declining choice of seed varieties. Patents ensure higher profits from higher seed prices by allowing the companies to outlaw thousands of farmers that sued for seed-saving.

Controversial consequences of the merger

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Now, two of the world’s largest pesticide-seed companies may merge into a still bigger entity. The union of Monsanto’s seeds and Bayer’s herbicides would perfectly position the merged giant to fully exploit a highly profitable cycle of increasing herbicide use and weed resistance. Unfortunately, toxic pesticides, pollinator decline and the illegalization of seed-saving are all prominent features of agriculture in America today, thanks to enormous global corporations that have gained control of the world’s seeds. Bayer offered $62 billion to acquire Monsanto, and while Monsanto rejected this offer, it remains open to a better one. If all go through, the deal would create a global giant in agriculture technology touching much of global food production through the development of seeds and pesticides.

The consolidation of two big industry players may also limit farmer choice and bargaining power, with increasing seed prices expected to be passed on to the grocery aisles. There’s already a deep and widely held public suspicion of Monsanto, which has been so battered by controversy that it dedicates a section of its website to allegations that its genetically engineered seeds are harmful, that the company is malicious in its dealings with farmers and more. Genetic engineering is often the target of health concerns, but the real danger is how it impedes biodiversity. That concern also translates to weather variations, a factor that has become even more unpredictable with climate change. Seeds are sold with a combination of traits, including being more disease-resistant, productive and so on. These traits prevent farmers from customizing to their specific geographies and other particularized concerns and forces them to pay for traits they don’t require. And obviously, higher seed prices translate into higher consumer prices.

Monsanto wants farmers to pay a royalty to plant any seed that descended from a patented original. The big seed companies use a strategy to attack seed savers that consists of three stages: investigations, coerced settlements, and litigation. Just in the U.S., Monsanto has sued hundreds of farmers and small farms businesses for alleged seed patent violation.

Opposing groups united against Monsanto

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Last week, dozens of environmental activist groups, farmers, and sustainable food organizations joined forces at the COP21 Paris to announce that Monsanto will face international tribunal over crimes against humanity and the environment. It is set to take place in October of 2016, on World Food Day. The effort already seems to be receiving resistance from corporate media. The announcement took place at the climate summit, because they think that Monsanto is a major contributor to anthropogenic greenhouse gas emissions, the depletion of soil and water resources, declining biodiversity, species extinction, and the displacement of millions of small farmers worldwide. “The Tribunal will rely on the ‘Guiding Principles on Business and Human Rights’ adopted at the UN in 2011. It will also assess potential criminal liability on the basis of the Rome Statute that created the International Criminal Court in The Hague in 2002, and it will consider whether a reform of international criminal law is warranted to include crimes against the environment, or ecocide, as a prosecutable criminal offense, so that natural persons could incur criminal liability.”

Another bidder for the merger

Adam Greene CPA knew that Bayer could face a rival for the $62B Monsanto takeover in Hugh Grant, chairman and CEO of the St. Louis-based seed and Pesticide Company. Mr. Grant said in a Wednesday statement he's held recent talks with representatives of both Bayer and "others regarding alternative strategic options." The possibility of a new contender against Bayer came as Monsanto reported a $717 million third-quarter profit, or $1.63 a share. Both financial measures fell below Wall Street forecasts. Despite the downbeat financial news, Grant's statement about the takeover talks sent Monsanto shares closed 2.4% higher at $103.52 Wednesday. Bayer, whose shares closed virtually unchanged, declined to discuss the comments.

The European Union announced plans for a close review of the potential Bayer-Monsanto deal to create the world's largest seed and pesticide business. For now, two European Parliament members from Germany oppose the deal. The review would likely examine the transaction's potential impact on prices, the diversity of available seed products as well as research. It must strictly and impartially apply European merger control rules. Also, European Parliament member Martin Häusling has warned that a Bayer takeover of Monsanto would leave the European Union's vegetable seed market in the hands of just four companies. 

5 of the Biggest and Most Important Mergers of the Last Decades

The world of corporations and business is one that moves a lot. Companies appear and disappear almost every day, at any time anywhere in the world. It is a dynamic world, so the industries and businesses are dynamic as well and are always looking to improve their status. One of the ways companies and corporations grow is through mergers and acquisitions, (M&A). The idea is to join forces and use the principle of “One plus one equals three” in order to gain advantages like a larger customer base, global footprint, access to distribution channels or suppliers, technical knowhow, and many other things. They don’t always go as expected, but when they do they give the business a competitive edge and enhance shareholder value. Let’s take a look at 5 mergers and acquisitions, that apart from being between 2 big corporations, they were all over the media headlines and were very important for countries, companies and the general public.

Facebook buys Instagram

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In 2012, social network Facebook acquired the mobile photo-sharing service Instagram for the astonishing amount if $1 billion. At the time the company´s CEO Mark Zuckerburg said that it was not likely that they engaged in any other acquisitions of this size and importance. As everybody knows, Instagram is still an independent standalone app separate from Facebook, but with the acquisition, the idea was to improve the service ties between the two companies. The acquisition has been highly criticized because people don’t understand why they needed to spend a billion dollars to do something they probably could have coded in-house for a lot less money and could have gotten the same or even a better result and instantaneous market share.

Apple acquires NeXT

The catch for this business deal is that Steve Jobs used to be part of apple and he was removed from his post. He then founded NEXT and then, with this move, he returned back to apple. This acquisition happened in 1996  and the price was $429 million dollars. Steve Jobs revolutionized the Tech industry and was seen as an icon in Silicon Valley. Everybody knows how the story ends and the success that apple has had in the last 10 to 15 years.

AOL and Time Warner

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This merger is the proper example of what companies shouldn’t do when they engage in this type of deals. This was a total disaster and it is even a case study in academic institutions on what not to do in acquisitions. Time Warner, one of the biggest media and entertainment companies in the world was acquired by America Online Inc (AOL) in 2000 for an amazing $ 182 billion. The merger was registered as the “the biggest mistake in corporate history” by Time Warner Chief Jeff Bewkes. At the same time the dot-com bubble bursted, and resulted in AOL Time Warner reporting a loss of $99 billion in 2002. Their idea was to create the world’s first fully integrated media and Communication Company for the internet century. As we all know, the company did not go that way and the merger failed miserably.

AT&T and Bellsouth.

In 2006 the communication giant AT&T acquired the telephone and communication technology company BellSouth in a deal that went up to $67 billion. The deal resulted in giving AT&T a local customer base of 70 million across 22 states further strengthening its dominance in the industry. Around that time, the company aimed to achieve a combination that would create a more effective and efficient provider in the wireless, broadband, video, voice and data markets. The two companies were already joint owners of Cingular Wireless with 60% ownership with AT&T and 40% with BellSouth and the idea with this merger was to  be more innovative, nimble and efficient, providing benefits to customers by combining the Cingular, BellSouth and AT&T networks into a single fully integrated wireless and wireline Internet Protocol network offering a full range of advanced solutions.

Exxon Mobil merger

This merger was one of the most important mergers in the oil and gas sector. It happened in 1998 and the result was the Exxon Mobil Corporation (XOM), the largest company in the Oil & Gas sector was created. What they did was to bring together the fragments of Standard oil monopoly (Exxon Corporation and Mobil Corporation) in an $80 billion deal. At the time of the deal, Exxon and Mobil had a combined market capitalization of $237.53 billion.

As we can see, mergers can go wrong and can be very successful. It depends on how it is carried out. We wanted to point out some examples of very famous and well known mergers and acquisitions that have happened in the last two decades.

Here's Everything You Need to Know About Mergers and Acquisitions

Mergers and acquisitions of companies

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External development is a form of corporate growth that results from the acquisition, participation, association or control of a company, companies or assets of other companies, broadening their current businesses or venturing into new ones. The most widely used term in corporate jargon is mergers and acquisitions (M&A).

The reasons for a company to choose external development (fusions, acquisitions, alliances...) as opposite to the internal one may have its origins in:

1. Economical reasons

●       Cost reduction: through economies of scale or economies of scope by the integration of two companies whose productive and commercial systems are complementary to each other, thus creating synergies.

●       To acquire new resources and capacities by means of the union or acquisition of another company.

●       Substitution of the management team: often, when the management is substituted, a greater increase in value occurs.

●       Obtaining tax incentives that can increase the benefits of the acquisitions and mergers, thanks to the existence of exemptions or bonuses.

2. Market power reasons:

●       It can be the only way of penetrating an industry or country, due to the existence of strong barriers to entry

●       When the mergers and acquisitions occur through an horizontal integration, an increase of market power of the resulting company is pursued, and as a consequence, a reduction of the level of competition within the industry.

●       When the mergers and acquisitions occur through a vertical integration, companies who act in different stages of the productive cycle are integrated. The goal in these cases is to obtain the advantages of the vertical integration as soon as possible, both backwards and forwards.

Types of external development

Company merger: it’s the integration of two or more companies in such a way that at least one of the original ones disappears.

Acquisition of companies: trading operation of blocks of shares between two companies, keeping their legal entities.

Cooperation or partnership between companies: this is an intermediate formula, bonds and relationships are established between the companies, without losing the legal entities of any of the participants, who keep their legal and operative independence.

In terms of the type of relationship that is established between the companies, they can be classified as follows:

●       Horizontal: the companies are competitors of each other and they belong to the same industry.

●       Vertical: the companies are located in different stages of the complete product exploitation cycle.

●       Conglomerate: Companies have very different activities from each other.

Mergers

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These are unions between two or more companies, where at least one participant loses its legal entity.

1. Pure merger:

Two or more companies of an equivalent size agree to merge, creating a new company to which they bring all of their resources, dissolving the original companies (A + B = C)

2. Merger by absorption

One of the companies involved (absorbed) disappears and its patrimony is integrated into the absorbent one. The absorbent company (A) continues to exist, but it accumulates into its patrimony the corresponding to the absorbed company (B).

3. Merger with partial contribution of assets:

A society (A) contributes only a part of its patrimony (a) next to the other company with which it merges (B), be it to a new society (C) created in the merger agreement, or to another pre-existent society (B), which as a consequence increases in size (B’), it is necessary that contributes assets (A) does not dissolve.

Acquisitions

Company participations or acquisitions take place when a company buys part of another company’s capital stock, with the intention of dominating it completely or partially.

The acquisition or participation in companies will allow different levels or degrees of control according to the percentage of capital stock of the acquired company in its power and according to the way in which the rest of the bonds are distributed among the other stakeholders: large stock blocks in the hands of a few individuals or a large number of stakeholders with scarce individual participation.

The buyout of a company can be done through a conventional purchase contract, but in the past few decades, two financial formulas have been developed.

1. Leveraged buyout:

It consists in financing an important part of the purchase price of a company by the use of debt. This debt is insured, not just for the patrimony or creditworthiness of the buyer, but also for the assets of the acquired company and their future cash flows. This way, after the acquisition, the debt ratio usually reaches high values.

The purchase may be made by the company directors themselves. In this case we’ll find ourselves before a “management buyout” (MBO). The reason why they might make the decision of purchasing the company for which they work could be to lead it towards the appropriate direction.

2.  Share Acquisition Public Offer

The Share Acquisition Public Offer is produced when a company makes a purchase offer, of all or part of the capital stock, to the stakeholders of another listed company under a specific set of conditions, usually related to price, percentage of capital stock and time.