Frost & Sullivan Market Insight   Published: 11 Feb 2002
Bayer’s Acquisition of Aventis CropScience: Is This a Win-Win Deal?
Date Published: 11 Feb 2002
by Ivan Fernandez
It will be the largest ever acquisition in Bayer's 138-year history. The German giant is set to acquire Aventis CropScience (ACS) from Aventis (which owns 76 percent) and Schering (which owns 24 percent) for around $6.29 billion (€7.25 billion). Bayer plans to unite its own agrochemical division with ACS to form a new entity: Bayer CropScience.
With the December 1999 merger of Hoechst and Rhone-Poulenc to form Aventis, AgrEvo (a joint venture between Hoechst and Schering) and Rhone-Poulenc Agro were merged to create ACS. Over a year ago, Aventis announced its intention to divest ACS by the close of 2001. While BASF and Dow Chemical were also being viewed as potential buyers, it was Bayer that eventually emerged as the buyer by mid-2001. Bayer expects to complete the transaction by the end of the first quarter of 2002. But, this is subject to approval from European antitrust regulators, the United States Federal Trade Commission, and the Canadian authorities. Speculation is rife that with Bayer already being the market leader in insecticides, ACS’s insecticide business might have to be sacrificed to fend off antitrust proceedings.
What does this acquisition mean to each of the principal players?
Bayer
Bayer is reinventing itself. The group will not only have a new CEO soon (CFO Werner Wenning succeeds Manfred Schneider as CEO in April 2002), it will also undergo complete reorganization toward sharpening its competitive edge. In December 2001, plans were announced to restructure the group into four independent divisions: chemicals, polymers, healthcare, and crop science under a management holding company.
A critical component of this plan, which is to be implemented by January 1, 2003, is the ACS deal. To finance the acquisition, Bayer plans new borrowings. Restructuring costs, as a consequence of the ACS acquisition, would be around $434 million (€500 million). But, while the borrowings may reduce the group’s chances of any further expansions in the near future, the gains are many:
  • The acquisition will make the new company, Bayer CropScience, the second largest in the global agrochemical market, right behind the world leader, the Swiss giant, Syngenta.
  • In the herbicide market rankings, this acquisition takes Bayer from an inconsequential seventh to an enviable third position, behind Monsanto and Syngenta.
  • The combination of Bayer’s agrochemical division with ACS will not only increase synergies, but also remove redundancies and save costs by around $434 million (€500 million) a year.
  • Through the acquisition, Bayer will also be moving into uncharted territory, the genetically-modified (GM) crop business, which promises huge rewards.
Hopefully, the ACS acquisition will mark for Bayer the beginning of less stressful times. The company voluntarily recalled its cholesterol-lowering drug, Baycol (cerivastatin), in August 2001, after over 50 deaths were linked to its use. Marketed as Lipobay in several countries, Baycol was linked to fatal rhabdomyolysis, an adverse reaction of the muscles. A subsequent dip in share price forced the company to postpone its planned listing on the New York Stock Exchange from September 2001 to January 24, 2002.
Aventis
Aventis has also had its share of recent controversies, primarily in the field of GM crops. In the United States, food products such as taco shells, tortillas, and chips were found to contain ACS’s GM corn, StarLink, which had not been approved for human consumption. On the other side of the Atlantic, ACS’s field trials for GM crops provoked considerable public uproar in the United Kingdom.
For Aventis, the significance of the divestment lies in:
  • Enabling it to focus itself better as a pharmaceutical company
  • Helping the company equip itself for further expansion in pharmaceuticals
  • Reducing the company’s net debt
Significantly, the divestment will not free Aventis of its potential liabilities related to its StarLink technology, which was excluded from the transaction.
Schering
The German pharmaceutical major, Schering’s stake in ACS can be traced back to its 1994 spin-off of its crop protection business, along with Hoechst, to form AgrEvo. With the merger of Hoechst with Rhône-Poulenc, AgrEvo was integrated into ACS. Schering is likely to get around $1.3 billion (€1.5 billion) for its stake in ACS.
For Schering, the gains are obvious:
  • The divestment of its stake in ACS will greatly augment Schering’s financial potential for further acquisitions and growth opportunities.
  • As with Aventis, the divestment will also allow Schering to concentrate its energies in the pharmaceuticals sector, which clearly outpaces the agricultural sector in terms of growth.
Bayer CropScience
The new company, Bayer CropScience, which will function as an independent unit within the group, will command over 15 percent market share in the global crop-protection arena. It will have crop protection, bioscience, and environmental science as three autonomous business lines. The much wider product offering (insecticides, herbicides, fungicides, seeds, and biotechnology solutions) is expected to power the company toward a target of over $7 billion (€8.1 billion) in sales and a 20 percent operating margin for 2005. To be headquartered in Monheim, Germany, Bayer CropScience will have at its helm the present General Manager of Bayer’s crop protection business group, Dr. Jochen Wulff. As is to be expected with such deals, 4,000 job cuts are expected from the combined workforce of 22,500 (ACS constituting 14,500 employees and Bayer’s agrochemical division 8,000). Eventually, the effective integration of ACS into the Bayer group will play a key role in what many see as the most comprehensive streamlining of structure and approach in the group’s history.
For the agrochemical industry, this deal represents further consolidation. In 2000, Syngenta was formed by the merger of the agrochemical sectors of Novartis and AstraZeneca. Now, with two very large market leaders (Syngenta and Bayer CropScience), the chances of further mergers and acquisitions in the agrochemical sector, on the scale of Bayer’s acquisition of ACS, are certainly remote.
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