Bayer-Monsanto

The Man Behind the Bear Hug

resized Johannes Dietsch Bayer CFO since Oct 1 2014 source imago Sepp Spiegl 67232067
Johannes Dietsch, Bayer's home-grown CFO.
  • Why it matters

    Why it matters

    After rising through the ranks at Bayer, CFO Johannes Dietsch faces perhaps the greatest challenges of his career in trying to complete the Monsanto takeover – the largest ever acquisition by a German company.

  • Facts

    Facts

    • Bayer’s accepted cash offer for Monsanto is worth $66 billion, of which the company plans to raise €17 billion, or $19 billion, through a capital increase.
    • The pharmaceutical and chemical giant’s management developed a strategy to acquire Monsanto known in financial circles as a bear hug: an offer that Monsanto could not refuse.
    • Before putting together the deal, Mr. Dietsch and CEO Werner Baumann solicited the support of major institutional investors.
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    Audio

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When Bayer’s leadership was weighing an offer for seed producer Monsanto back in the spring, everyone agreed on one thing: They had to make a strong impression from the start – both with the management and shareholders of the U.S. corporation.

It’s what led Bayer to make a mammoth takeover offer – one that they knew Monsanto wouldn’t be able to refuse. It’s what is known in the field as a bear hug: The trick is to never let your target out of your grasp.

The task of building an irrefusable offer fell to a stocky and easygoing man – Johannes “Hanno” Dietsch, Bayer’s chief financial officer for the last two years.

The 54-year-old Mr. Dietsch was one of the key figures in the talks between Bayer and Monsanto, which ran from May to September, together with Chief Executive Werner Baumann, Crop Science Division head Liam Condon and Supervisory Board Chairman Werner Wenning.

Bayer’s initial cash offer of $122 (€108.88) per share, a 37-percent markup over the stock price, was intended to provide the Monsanto executives with little room for counterarguments. After the initial salvo, Bayer agreed to raise the offer only to a limited extent and in smaller and smaller increments: first by $3, then by $2.50 and, finally, by only 50¢ per share.

The negotiating strategy was successful. Monsanto never emerged from Bayer’s bear hug and accepted the takeover last month. The supervisory board approved the takeover on September 14.

With that, Mr. Dietsch had delivered his masterpiece.

In his relatively short term in office, the Bayer CFO has acquired a strong reputation in financial markets. His earnings forecasts are considered reliable among analysts.

Mr. Dietsch is in charge of the numbers at Bayer, headquartered in Leverkusen, near Cologne. And those numbers are impressive. After all, Bayer was able to  cough up $66 billion for the Monsanto takeover – the largest ever foreign acquisition by a German company.

The deal is expected to create €1.5 billion in synergies within three years of its conclusion. But first, Bayer has to raise €17 billion ($19 billion) in equity. It’s the biggest capital increase a German company has ever hazarded.

Given that mammoth task, there’s probably no other CFO of a DAX-listed company with bigger challenges on his desk (putting aside Volkswagen’s CFO for the moment).

In his relatively short term in office, the Bayer CFO has acquired a strong reputation in the financial market. His earnings forecasts are considered reliable among analysts. Another investor described Mr. Dietsch as “engaging and prudent.”

“Johannes Dietsch made a good impression, and not just with the current takeover of Monsanto,” said Markus Manns, portfolio manager at Union Investment, one of Bayer’s 15 largest investors.

One other advantage for Mr. Dietsch: His boss Mr. Baumann, the CEO, understands the language of the capital markets where Mr. Dietsch will have to solicit his financing tools. Mr. Baumann was CFO before being promoted to chief strategy officer two years ago, a position that made him the likely successor of then Chief Executive Marijn Dekkers.

 

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In his years at Bayer, Mr. Dietsch worked his way up to the top through the company’s finance departments. He is a typical homegrown talent, the type of person Bayer likes to promote.

Like Supervisory Board Chairman Werner Wenning, Mr. Dietsch made it into top management without a university degree. He completed an apprenticeship as an industrial management assistant at Bayer in 1984, went to Japan, and became head of finance in the Corporate Center of Bayer AG in 2002.

For Mr. Dietsch, the appointment to CFO in October 2014 meant returning from China, where he had spent the last three years running Bayer’s operations. And he had no real choice but to hit the ground running.

His first major task as Bayer CFO was the initial public offering of the former plastics division, which the pharmaceutical and chemical giant spun off in September 2015 under the name Covestro. It has turned into a lucrative deal for buyers of Covestro stock, which has more than doubled since the IPO.

The successful spinoff provided Mr. Dietsch with the leap of faith he needed to manage the bridge financing for the Monsanto purchase, which required the right mix of banks to make loans available for at least $62 billion. The lenders included Bank of America Merrill Lynch, Credit Suisse, HSBC, JP Morgan and Goldman Sachs.

Goldman Sachs’ involvement was important to Bayer, because it meant that Monsanto could no longer itself engage the bank, an expert in fending off takeovers. Only Deutsche Bank was left out of the mix, due to its close business relationship with rival BASF.

At the same time, Mr. Dietsch was in difficult talks with rating agencies and Bayer shareholders. The former had to be convinced of Bayer’s future creditworthiness and the latter of the benefits of the Monsanto deal.

In May and June, Mr. Dietsch and the CEO Mr. Baumann flew to London, Paris, New York, Boston and Los Angeles, where they talked up the logic of the mega-takeover with important institutional investors. Many supported the deal, but a few did not.

 

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The fact that he knows Bayer inside-out and is well-connected within the organization came in handy for Mr. Dietsch. His coworkers appreciate his openness and his ability to communicate with them as equals. In addition to his financial duties, he is also in charge of purchasing and compliance at Bayer.

During the most important phase of the Monsanto negotiations, Mr. Dietsch and his teams had to work night shifts. Working closely with portfolio experts in the department that handles corporate acquisitions, they examined selected Monsanto data to calculate the numbers that would justify further increasing the offer.

The company still has some major hurdles to clear in the coming months. If anti-trust authorities approve the merger with Monsanto, Bayer will tap the financial markets next year more than any other German company has done in the past. It will have to pitch €17 billion worth of new shares.

Once it has secured the fresh equity, it still won’t be out of the woods. Bayer will have to place several bonds in the market. Financial insiders estimate that the total bond volume could approach $25 billion.

If the Bayer CFO completes this job successfully, he is likely to be considered for a raise. In 2015, Mr. Dietsch earned €2.2 million, which is significantly less than what his fellow CFOs at other major DAX corporations make.

 

Bert-Friedrich Fröndhoff leads a team of reporters that covers the chemicals, healthcare and services industries at Handelsblatt. To reach the author: froendhoff@handelsblatt.com

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