by Naomi Kresge and Tim Loh
Bayer AG’s $63 billion Monsanto purchase has suffered regulatory delays, mounting legal claims and now will yield lower earnings for the year than earlier forecast. Still, the company’s CEO says he has “no regrets.”
The German company lost out on revenue from Monsanto’s busy spring season, when farmers in the Northern Hemisphere plant the bulk of their crops, because antitrust challenges slowed the acquisition of the maker of Roundup weed killer. The shares fell as much as 3.7% in Frankfurt, and have lost about 23% this year.
“The Monsanto business is very healthy,” Chief Executive Officer Werner Baumann said Wednesday in an interview with Bloomberg TV. “We are as excited as we have ever been about the combination, and there are absolutely no regrets.”
While acquiring Monsanto made Bayer the biggest seed and agricultural-chemicals maker in the world, the purchase has been dogged by a series of challenges from regulators and legal pitfalls. After officials around the world scrutinized the deal’s effect on competition in the consolidating agriculture industry, a legal battle over Roundup came to the fore.
Closing the deal required nearly two years of wrangling with regulators. Bayer filed some 40 million pages of paperwork, eventually agreeing to sell 7.6 billion euros ($8.8 billion) in agriculture assets -- including its vegetable-seeds business -- to German competitor BASF SE to placate antitrust authorities. The delays pushed the deal to June. Monsanto’s sales in the second quarter of 2017 were $5.07 billion, compared with $2.69 billion in the fourth quarter.
The deal continued to generate headaches when a California court last month awarded $289 million to a school groundskeeper who claimed that the herbicide had helped cause his cancer. As of late August, some 8,700 people were seeking damages over glyphosate, the main ingredient in Roundup -- a number that has risen steadily in recent months. More cases are expected, Bayer said.
Bayer contends that Roundup is safe. The company said it’s set aside money for a “vigorous” defense, without saying how much.
Core earnings per share will probably reach about 5.70 euros to 5.90 euros, the Leverkusen, Germany-based company said in a statement. That falls short of 6.22 euros, the average estimate of analysts surveyed by Bloomberg. Bayer had projected its earnings before interest, taxes, depreciation and amortization without Monsanto would decline for the year.
Hard to Predict
This year’s Bayer earnings were always going to be hard to predict because of the Monsanto deal, and next year’s will be more telling, said David Evans, an analyst at Kepler Cheuvreux. Bayer’s weaker-than-expected 2018 earnings forecast was a result of Monsanto’s “extreme phasing of seasonal earnings,” he said in a phone interview. “It certainly doesn’t really help sentiment on the stock.”
Boosted by the acquisition, sales will exceed 39 billion euros this year, while Ebitda before some special items will increase by a low- to mid-single-digit percentage, Bayer said. Without Monsanto, Bayer had previously predicted that sales would be less than 35 billion euros and earnings by that measure would decline by a low-single-digit percentage.
The company had earlier said that 2018 earnings would equal those for 2017, 6.74 euros a share. Bayer revised last year’s core EPS downward, to 6.64 euros per share, to reflect changes after its rights offering in June.
While the share drop is “understandable” given the Monsanto delays, the company’s performance and outlooks for its segments haven’t changed, Bloomberg Intelligence analysts Christopher Perrella and Michael Shah said in a note.
Bayer-Monsanto is the last of a trio of a mega-deals to reshape the market for seeds and pesticides. DuPont Co. merged with Dow Chemical Co. last year, while China National Chemical Corp. acquired Syngenta AG.
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