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BASF to buy seeds, herbicide businesses from Bayer for $7 billion

From Reuters - October 13, 2017

FRANKFURT (Reuters) - BASF (BASFn.DE) has agreed to buy seed and herbicide businesses from Bayer (BAYGn.DE) for 5.9 billion euros ($7 billion) in cash, as Bayer tries to convince competition authorities to approve its planned acquisition of Monsanto (MON.N).

BASF, the worlds third-largest maker of crop chemicals, has so far avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licenses out to seed developers.

But Bayers $66 billion deal to buy U.S. seeds group Monsanto, announced in September 2016, has created opportunities for rivals to snatch up assets that need to be sold to satisfy competition authorities.

Bayer said it would use the proceeds to partly refinance the Monsanto acquisition. It plans to raise $19 billion toward the deal by issuing convertible bonds and new shares, and has lined up as much as $57 billion of bridge financing from banks.

Baader Helvea analyst Markus Mayer said a higher-than-expected valuation of the assets up for sale could mean Bayer now needs to raise less than $10 billion from the sale of new shares, which would be a positive surprise.

Bayer had offered to sell assets worth around $2.5 billion. The European Commission said in August that the divestments offered by Bayer so far did not go far enough and started an in-depth investigation of the deal.

Bayer has to sell the LibertyLink-branded seeds and Liberty herbicide businesses, which generated 2016 sales of 1.3 billion euros, because they compete with Monsantos Roundup weed killer and Roundup Ready seeds.

LibertyLink seeds, used by soy, cotton and canola growers, are one alternative to Roundup Ready seeds for farmers suffering from weeds that have developed resistance to the Roundup herbicide, also known as glyphosate.

The spread of Roundup-resistant weeds in North America has been a major driver behind Liberty sales.

BASFs decision to acquire seeds assets represents something of a change to its prior view on its needs to respond to recent industry consolidation in agriculture, Morgan Stanley analysts said.

Nonetheless, the proposed assets for acquisition are high margin and high growth and represent a sensible bolt-on addition, they added.

POSITIVE SURPRISE

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