Transformational event

Bayer to eliminate Monsanto name, but that won’t end controversy

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Sitting on top of the world. Source: Reuters

Bayer completes its takeover of Monsanto Thursday and plans to snuff out the 117-year old name of the controversial US firm it has acquired with great effort. Yet that won’t end the turmoil over a company that has angered consumers with its genetic modification of plants and glyphosate products, farmers with its aggressive policy of marketing seeds, and everybody with its promotion of deadly poisons — from DDT to Agent Orange, to, yes, Roundup.

The $63 billion (€54 billion) acquisition transforms Bayer from a diversified firm most famous for aspirin into the world’s largest maker of seeds and pesticides. It is an audacious effort at rebranding that has no guarantee of success.

Unless you ask Bayer CEO Werner Baumann, who cajoled, begged and pestered regulatory authorities and investors over a 20-month period to make the acquisition work. He is relying on Bayer’s reputation to counter critics and overcome investor skepticism.

“The Bayer cross stands for trust, competence and quality worldwide,” Mr. Baumann said in an interview with Handelsblatt, referring to the company’s famous logo. “I guarantee that we will live up to our increased responsibility — towards farmers, consumers and the environment.”

“There are risks being cited that have been proven wrong in practical use over 25 years.”

Werner Baumann, CEO, Bayer

Monsanto, which was founded in 1901, was for years a conventional chemical company, producing both basic feedstocks and pharmaceuticals. After the war, it ventured into household products with a brand-name laundry detergent among other things. But it was always into poison, becoming one of several makers of the insecticide DDT until it was banned in the US in 1972. It was one of nine producers of Agent Orange, used by US troops to defoliate agricultural land in the Vietnam War. In 1977, pollution from Monsanto’s PCB production was so intense it stopped manufacturing that controversial product.

Starting in the 1990s, Monsanto focused on agrochemicals and seeds, gradually shedding other product lines. It pioneered genetic modification of plants and its aggressive marketing of pesticide resistant seeds, including numerous lawsuits against farmers for patent infringement, was fiercely resented and criticized.

That is why the combination of the two market leaders in agrochemicals has led to concern that there will be less competition, less choice and higher prices. “Some 30 authorities worldwide have reviewed the acquisition and made sure with numerous conditions that competition in the agricultural sector will remain strong in the future,” Mr. Baumann said, rejecting these claims.

Bayer is making divestitures of some $9 billion to comply with regulators’ requirements, selling off many business lines to rival BASF. The divestitures hurt, Mr. Baumann acknowledged. “But it was the goal of antitrust authorities to strengthen competition,” he said. “BASF is now furnished with attractive businesses that we intensively developed over decades and would dearly loved to have kept.”

But the Bayer chief executive remains convinced that the synergies, the scale and innovative potential of the combined agribusinesses will produce growth and profit. “Feeding a growing world population is a long-term trend that we want to contribute to solving,” he said.

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Monsanto was battling a flood of class action suits alleging that the glyphosate in weedkiller Roundup cause cancer. The European Union debated a ban before renewing the license for glyphosate for five years in November. For Mr. Baumann, much of the regulatory debate has become an ideological issue that has little to do with facts.

“There are risks being cited that have been proven wrong in practical use over 25 years,” he said. “Regulatory decisions for our products are increasingly overlaid with ideology.” But this kind of decision making can stifle innovation, Mr. Baumann said. “We can’t let it happen that progress comes to a standstill in the face of hardened ideological fronts.”

Mr. Baumann maintained that Monsanto, despite its bad reputation, had standards of conduct just as Bayer has. But he acknowledged that Bayer does some things differently, and that would now be extended to Monsanto products. “We make safety studies for pesticides accessible to the public, that anyone can look into,” he said, citing it as an example. “We’re not obliged to do that. You’ll see more of that in the coming years.”

Criticism of Monsanto won’t go away just because the name Monsanto disappears, Mr. Baumann realizes. “Bayer stands for exchange and open dialogue with critical stakeholders,” he said. “We’re going to expand that.”

The best way to convince skeptical investors is with higher profits. Mr. Baumann expects the merger to improve earnings per share starting already next year. Once the effects of divestiture have been overcome, starting in 2022, synergies will contribute $1.2 billion annually to adjusted earnings before interest, taxes, depreciation and amortization.

Sven Afhüppe is editor in chief of Handelsblatt. Bert Fröndhoff heads up coverage of chemicals, healthcare and services. Darrell Delamaide is a writer and editor for Handelsblatt in Washington, DC. To contact the authors: afhueppe@handelsblatt.com, froendhoff@handelsblatt.com, and d.delamaide@extern.handelsblatt.com.

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