1- Why did Bayer diversify into the highly competitive agrochemical industry when its

pharmaceutical market was still growing?

Answer:

The pharmaceutical industry was still growing as the question mentioned. According to the case

study, it is projected to grow between 4 and 7 percent per year. There were major regulatory

reforms in the industry, including more prudent management of government health care budgets in

mature markets. Developing new drugs took a lot of time, and the cost to develop new drugs was

continuously rising. Leaders in this category generate the majority of their revenue from sources

other than pharmaceuticals. For the sake of maintaining its leadership position, Bayer has

diversified and repositioned itself as a life science company while expanding globally. As a

consequence, Bayer was looking for solutions to some major challenges centered on a growing and

again population who had a greater demand for improved medical care and food supply security.

This can be accomplished by gathering a deep understanding of biochemical processes within living

organisms.

Pharmaceuticals are a highly competitive industry. Revenues increased, but costs associated with

bringing a new drug to market (from R & D to marketing) grew by up to 145 percent in 2021. The

cost of R&D is extremely high since it can take over 12 years for a molecule to be discovered and

only 10 percent of molecules make it to the market. With the patents of existing drugs expiring and

generic competition on the rise, diversifying seemed to be a good choice.

The company was already a market leader in crop protection, and in order to maintain its position, it

diversified its revenues and rebranded itself as a Life Sciences company, focusing on 5 sectors:

Pharmaceuticals, Consumer Health, Crop Science, Polymers, and Animal Health. There were no

seed patents for the company's crop science division, which relied heavily on pesticides and

herbicides. During the 90's, hybrid seeds and genetically modified organisms (GMOs) led to a

drastic decrease in pesticides and insecticides. In a meta-analysis in 2014, it was concluded that

GMO crops have reduced pesticide use by 37 percent and increased crop yields by 22 percent.

Bayer's crop science division is suffering from the success of GMO producers such as Monsanto.
Bayer held 17 percent of the global pesticide market, making it the second biggest company on the

planet. By comparison, Monsanto controls just 7.4 percent of global pesticide sales but 26 percent

of global seed sales, making it the industry leader in seed sales. Consequently, Bayer decided it

would be easier to buy out its rival if GMO seeds were driving down sales of its pesticides.

2. Given the high acquisition premium with an all-cash transaction, antitrust concerns that could

lead to subsequent divestments, and Monsanto’s negative brand image due to its frequent

involvements in controversial business operations, did Bayer make the right decision to diversify

into agrochemicals by merging with Monsanto?

Answer:

As it turns out, it was not a wise decision. In fact, Bayer is currently suffering huge losses and its

total value is approximately $63 billion less than what it paid for Monsanto. One of the biggest

failures in mergers and acquisitions is the Bayer-Monsanto merger. Bayer had successfully

integrated with other crop science companies in multibillion transactions (example: Aventis), but it

was overly optimistic that the same would happen with Monsanto, however, Mr. Baumann did not

seem to make a careful and calculated move:

Initially, Bayer's stock purchase price per stock seemed very high (more than a 40 percent premium)

and led to a huge debt for Bayer, thus damaging the stock price. The company had to divest a record

amount of 9 billion dollars for anti-trust reasons in order to get approval from the US Department of

Justice, and it had to divest in several areas of crop science in order to get approval from the

European Commission. There was controversy in 2015 about Monsanto's herbicide Roundup

causing cancer and that the company bought scientists to publish fake reports. The sale of Roundup

was approved just 1 month after Monsanto received a number of lawsuits. Monsanto's total

Roundup liability is estimated at between €5 billion.

image), why did Bayer still choose to pay the acquisition all by cash?

Answer:

The case study does not go into great depth about why the company chose to finance the acquisition

with cash, but the reasoning is likely due to wanting ownership and control while also bearing all

the risk of maximizing synergies. Stock purchases involve shared risk proportional to the amount

owned by each party. Berer wanted complete control and to capitalize on Monsanto's seed and trait

leadership.

4. What might be the consequences of market concentration for the agrochemical industry following

the merger? What are the regulatory challenges and ethical concerns associated with an oligarchic

market?

Answer:

This merger posed an economic and political threat / new barrier to entry, which could have

resulted in a plethora of chemical and seed choices being reduced. It could jeopardize biodiversity

and cause farmers to pay more for products made by larger companies. The introduction of

Monsanto's products and GMOs into new areas has legal repercussions due to the fact that they are

strictly prohibited in some European countries. Agrochemical products are the main focus of the

social and cultural aspects of the merger as a whole.

5. What are your recommendations for Bayer to move forward if the merger deal is approved? How

can the combined entity create sufficient synergies? If the deal is approved, what should Monsanto

do?

Answer:

The deal has been approved and finalized to my knowledge. Bayer shareholders are currently

suffering losses (total returns to shareholders are currently negative 40 percent). As a result of the

deal, Monsanto dropped its name and became Bayer, in an attempt to eliminate the negative

reputation of the former company. The lawsuits, however, have tarnished Bayer's reputation instead.

Currently, the company is facing some difficult times and a difficult decision:
 1. Divide the healthcare and consumer care divisions from the agrochemicals division, making

the pharmaceutical division profitable for shareholders. Such a breakup would also probably

mean a change in leadership. The disadvantage is that it would also make Bayer an easier

target for takeover (especially as its bestselling drug Xarelto is coming close to a patent

cliff) and also that it would be a public admission of failure.

2. Dispute lawsuits in order to minimize losses and offer alternative methods of using roundup,

while investing in friendlier/greener alternatives in its crop science division in order to erase

the image of an evil corporation that will destroy the environment. Moreover, Bayer is

heavily indebted, thereby reducing the budget for R&D.