Project of Corporate Finance

Youssef Idrissi

Irena Jindrichovska

FIN 304/Fall 2017

December 7, 2017

        Project of Corporate Finance: Merger or Acquisition

Bayer AG is a multinational pharmaceutical and life sciences company. With its headquarter in Leverkusen (Germany), the business areas in which Bayer operates consist of healthcare products, human and veterinary pharmaceutical products, biotechnology and agricultural products as well as the production of polymers with an important value. The products and services offered by Bayer are intended to benefit individuals and enhance their life quality in order to capture back the value and satisfaction created by their customers. In the meantime, the company plans to establish value through innovation, growth and an important earning power. In other side of the acquisition deal, Schering AG was a research-centered German multinational pharmaceutical company headquartered in Wedding, Berlin, which operated as an independent company from 1851 to 2006. In 2006 it was bought by Bayer AG and merged to form the Bayer subsidiary Bayer Schering Pharma AG, which was renamed Bayer HealthCare Pharmaceuticals in 2011. Schering was listed on the Frankfurt Stock Exchange and had 26,000 employees as of 2004.

Referring to the 2006’s annual report of Bayer AG, the Bayer Management Board Chairman Werner Wenning explained that, the reasons behind the acquisition of Schering AG is to grow our health care business, especially in the area of pharmaceutical specialty products, thus substantially strengthening the Bayer HealthCare subgroup in its role as a primary growth engine for the Group. In addition, he added in a statement, “We are convinced that merging the two companies will create a health care heavyweight of international standing with a strong market position based on an innovative product portfolio and a well-stocked pipeline. We believe this merger to be an appropriate, compelling and value-creating step, which will also benefit our stockholders, employees, customers and patients. It is also the best way of reasserting the importance of Germany as a pharmaceutical industry base.” For my point of view, I think there is no additional reason behind the acquisition, since the Chairman gave the main points during the announcement.

Bayer made a deliberate public offer to Schering AG stockholders and holders of American depositary shares (ADS) of the target company. These shares were bought for EUR 86 per share through a wholly owned subsidiary (Dritte BV GmbH, Leverkusen). The transaction ended up to a total value of EUR 16.3 billion Euro. The Schering acquisition was founded on a balanced financing package of cash, borrowings and equity transactions. In addition to the mandatory convertible bond issued in March, they successfully placed 34 million new Bayer shares, worth €1.2 billion, in July of that year.

Accordingly, to the annual report of Bayer AG, The share price rose above €40 in 2006 for the first time in five years. Last year alone, the market capitalization grew by 20 percent to more than €31 billion. During the year, the share price was driven mainly by factors relating to the acquisition of Schering, Berlin, Germany. The announcement on March 23, 2006 of the intention to acquire Schering triggered a period of turbulent trading in Bayer stock, with a very high turnover at times. The tide turned in mid-June 2006, when it became increasingly clear that our public takeover offer would succeed, and Bayer shares went on from there to gain over 30 percent by year-end.

As stated, in the annual report of 2007, Bayer stock again developed very well in 2007, its price gaining 53.8 percent on the year. The €1.00 per share dividend paid in May 2007 brings the overall performance to 56.8 percent, putting Bayer in fourth place among dax’s 30 stocks. In addition, as shown in the graph below, Bayer stocks followed an outstanding path along the year.

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Furthermore, the acquisition of Schering AG by Bayer AG had a positive impact on the financial structure. As we can compere below between 2006 and 2007 financial statement of Bayer AG, we perceive an outstanding change in all financial key indexes. First, the EBIT of 2007 was EUR 1,313 million a rise of +42.3 from 2006, resulted from the acquisition of Schering AG. As we see below in quarterly sales of Healthcare division of Bayer group, all the quarter of year 2007 show a significant change comparing to the previous year.

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After analyzing, all the financial keys above, we can conclude that the acquisition of Schering AG brought additional value to Bayer group more precisely to Bayer Healthcare®.

In the second part of the project, we focus on the most important transaction within the history of two industry-leading companies, the planned merger between Monsanto and Bayer AG. Bayer AG (Aktiengesellschaft) is a multinational pharmaceutical and life sciences company. With its headquarter in Leverkusen (Germany), the business areas in which Bayer operates consist of healthcare products, human and veterinary pharmaceutical products, biotechnology and agricultural products as well as the production of polymers with an important value. The products and services offered by Bayer are intended to benefit individuals and enhance their life quality in order to capture back the value and satisfaction created by their customers. In the meantime, the company plans to establish value through innovation, growth and an important earning power. On the other hand, of the deal, Monsanto is an American publicly traded multinational corporation. Headquartered in St. Louis, Missouri (USA), the corporation operates within the fields of agrochemical and agricultural biotechnology. In fact, 40% of the world's genetically modified (GM) crops are grown in the U.S., where Monsanto controls 80% of the GM corn market, and 93% of the genetically modified soy market. Monsanto is the industry leader for genetically seeds and crops, as it produces as well Roundup®, a widely used herbicide. In September 2016, Monsanto accepted Bayer AG’s offer to acquire shares in the company for $66 billion ($128 per share). Currently, the deal is pending its last regulatory approvals as the transaction is expected to be closed by early 2018.

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