BASF SE agreed to acquire the Crop Science Business of Bayer AG, a Leverkusen-based manufacturer of organic chemicals, for €5.9 Bn ($7.0 Bn) in cash.
Bayer decided to divest its seed and non-selective herbicide business in an effort to alleviate authorities’ anti-trust concerns and gain approval for its takeover of Monsanto, an agrochemical and agricultural biotechnology company.
The acquisition will provide BASF with an entry into the seeds market, where until now BASF lagged behind its competitors. BASF also stayed away from the recent wave of agrochemical consolidation, focusing instead on organic growth, R&D and cash accumulation. The patience is apparently paying off as the company can now selectively acquire profitable assets at lower valuations. Kurt Bock, CEO of BASF, stated the company will look for further acquisitions in that direction in order to expand its expertise.
BASF is paying 15x 2016 EBITDA of €385 million. The combined EBITDA margin is expected to be higher than the 24% margin of BASF’s Solutions business: the acquired Bayer businesses generated ~30% in 2016. BASF expects the deal to be EPS accretive in the first year. It also expects future revenue synergies of “hundreds of millions of euros” annually.
On the other hand, BASF management does not expect significant cost synergies as the two
businesses have limited overlap (herbicides only) and BASF promised to keep permanent Bayer staff for at least three years after the transaction.
On the day of the announcement, both stocks rose (by 0.3% for BASF and 1.3% for Bayer), which signals a positive sentiment from the market with respect to the transaction.
