In other minor news, Bayer buys Monsanto for $66B

Discussion in 'Politics, Religion, Social Issues' started by LizKat, Sep 14, 2016.

  1. LizKat, Sep 14, 2016
    Last edited: Sep 14, 2016

    LizKat macrumors 601

    LizKat

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    #1
    Bayer's winning smile rhymed with "biggest all-cash deal in history" at $128 a share.

    Bayer plans an equity component of about $19B and a bridge loan of $57B from some of the usual suspects, Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JPMorgan. Morgan Stanley and Ducera partners are financial advisor to Monsanto, BofA Merrill and Credit Suisse to Bayer.

    Bayer already has a lot of debt but all-cash deal means they dodge a shareholder vote which if equity rose above around $22B would have needed a 75% supermajority and the going looked tough. Hence cash deal, no vote, no issuance of new Monsanto shares. Put those protest-poster-kits away boys and girls.

    Name of of merged company not settled, Monsanto was said to be "flexible" on that issue. Hmm, yes, well. A rose by any other name is still a furtherance of consolidation in the already massively consolidated agrochemical sector. Farmers around the world are not thrilled as the crunching of seed and fertilizer options homes in on them. We've just seen Dow Chemical and duPont get hooked up, and ChemChina has bought the Swiss giant Syngenta. So six behemoths become four in less than a year. Down the rabbit hole anyone?

    http://blogs.wsj.com/briefly/2016/09/14/bayers-deal-for-monsanto-at-a-glance/

    The spate of deals announced over the past 10 months would place more than 80% of U.S. corn-seed sales and 70% of the global pesticide market under just three companies, sparking fresh concerns about the pricing power of the sector’s largest players as low crop prices are squeezing farmers’ incomes.

    And there's a two billion dollar breakup fee.

    And, they'll have to file for regulatory approval in about 30 jurisdictions.

    More details...


    Assuming the merger survives regulatory scrutiny, one of the WSJ blog pieces noted that ratings agencies may downgrade the merged entity to BBB if Bayer declines to exercise assorted options to get the debt load down... $57B in additional debt means $57B in additional debt, no matter how Bayer structures that skimpy equity component. It's said to be planned as mandatory convertible bonds, senior and subordinate bonds and a subscription rights issue.

    Value-wise the deal looks a little pricey for the cost of empire, as NYT's BreakingViews has noted:


    Bayer would be paying a $17 billion premium to Monsanto’s market capitalization on May 11, the day before talks between the two were first reported. Yet the value created by the deal, after taxing and capitalizing the annual savings of $1.5 billion, is just $12 billion.

    That value gap might explain why Bayer’s shares have flagged. As of Wednesday, the company’s market capitalization was slightly lower than on May 11. Yet the MSCI World Industrials and Health Care indexes are both up more than 2 percent over the same period. If Bayer shares simply tracked the benchmark, the company would be worth over $7 billion more than it was by midafternoon London time on Wednesday. Broadly speaking, that makes sense because Bayer is paying away all the benefits of the deal, and then some, to Monsanto shareholders.
    Well as usual there is a rosy picture for the guy at the top. Hugh Grant, the Monsanto exec, will get around $226M mostly from vested shares and options but also severance if he goes away. And of course if he doesn't go away, and just because the merger itself goes away, well there's that handy $2B breakup fee to shore up any disappointment over having to stick around and run Monsanto after all...

    Well I guess Donald and Hillary will be asked by media to comment in detail on this deal, eh? ;)
     
  2. smallcoffee macrumors 65816

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  3. mudslag macrumors regular

    mudslag

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    #3

    Based on?
     
  4. smallcoffee macrumors 65816

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    #4
    My intuition
     
  5. DearthnVader macrumors 6502a

    DearthnVader

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    #5
    That's been the trend of this administration, they killed the AT&T T-Mobile deal and some others:

    https://www.ft.com/content/7608d102-177c-11e6-b197-a4af20d5575e

    While Obama's administration isn't blocking that many more deals a year than W. did, and only half what Clinton did, he has blocked $404 Billion worth of deals, compared to W's $26.6 Billion, and Clinton's $137.3 Billion.

    However this deal has all the heave hitter banks loaning out $57 Billion, so I don't really think Obama's administration is going to say no to them.
     
  6. Slicktype macrumors 6502

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  7. LizKat thread starter macrumors 601

    LizKat

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    Well it will be a slog getting through the anti-trust considerations. They're not first out of the gate in the sector and hackles are rising. The WaPo piece cited below talks about some of the resistance that's past anti-trust per se, more about risk to farmers in terms of range of products and pricing changes. And the issues related to GMO resistance, GMO labeling.

    https://www.washingtonpost.com/busi...99de48-7aa6-11e6-ac8e-cf8e0dd91dc7_story.html

    “Asking whether GMOs are safe is like asking whether toys are safe,” said Rick Amasino, a University of Wisconsin professor of biochemistry who participated in the report. “Most people would recognize that as too broad a question. You can’t lump all chemicals into one bin.”

    Farmers don’t have to use these things. They have a choice,” Amasino added. “Industry is giving farmers something that, I suspect, farmers want.”

    Dana Perls, a senior campaigner on food and technology with Friends of the Earth, said agricultural juggernauts such as Monsanto have crafted institutional blocks that prevent small farmers from freely choosing how to grow their crops.

    “This further consolidation over our food system removes even more power from people to control their agriculture, and to choose what we can and can’t consume,” Perls said. The deal, she added, would “make it even more difficult to make sure that what comes onto the market is safe for people and the environment.”
    The part I bolded above made me laugh out loud but not as reaction to comedy. The farmer's choice is use this stuff or what now? The farmer "wants" this if he wants to farm, doubtless. This is where it's going. Stay in and meet the upped ante, or get out.

    But in my opinion, yes the regulators may stomp on it. Among other things, it's not like all of Bayer and its investors-- never mind rating agencies-- are thrilled with the deal. Bayer analysts try to bake in the ratings agency disappointment up front by mentioning the possibility but still when you see the headline and the BBB or whatever they stick on it, there is an additional impact for conservative investors.

    Success also depends in some large part on whether the EU can get its mind off Brexit for a second, Latin American regulators can look up from news on Venezuela and Brazil (not to mention Cihina) and the US can elect a President and Congress and get back to funding, or not funding, agencies of government without having some kind of major hissy fit. Those are a bunch of pretty tall orders.

    US probably needs to tot up again how much Chinese and other including German companies now actually control of the USA's economic pursuits. A billion here and a couple dozen billion there and pretty soon you're walking on a lot of leased-back land in your own country. Which could be okay, or, you know, maybe turn up awkward some time.

    It's one thing to piss off a bunch of Arkansas hog farmers or San Franciscan digital farmers by passing some government regulation. It's something else when doing that requires actual adjustment of international treaties.

    Observation: The alleged lawyer glut? That is a temporary thing.

    Globalization and consolidation are interesting in that "national" interests have become something else again in the realm of business. Business is still about profit margin maintenance. Oligarchies are powerful influences now in all governments of developed countries. Where they're even more powerful is with respect to how trade is conducted in less developed areas.

    There can be unexpected consequences to excessive cost-cutting into muscle and bone, but the process of outsourcing and M&A activity in lieu of stuff like direct research and development tends to delay recognition of unwanted side effects, whether on the local or global labor force or on consumers. When producers like farmers become middlemen between oligarchies like agrochemicals and mega-retailers, there can be hell to pay all around. The focus is on what does a given activity do to or for the shareholders, increasingly the institutional investors. Period. End of short term curiosity. Except for consumer-oriented producers and retail consumers. We get to stand around and gawk at the trainwrecks as long as we're not in one of them.

    All that's aside from the prospects of people waving the Frankenstein flag on this thing.

    GMO is here to stay since it's out of the box already. The industry fights against GMO labeling tooth and nail. It got an exenstion of some protection of its views this year by the usual method of an obliging Congress sticking something onto a Continuing Resolution. But the issue has not gone away and will rise up again big time after the elections. It's about whether Obama makes an executive order for mandatory labeling or whether Congress finally says okay let's do this right through legislation. My bet's on the former and then some ugly battles to try to undo exec action with some anti-consumer legislation. Stay tuned...
     
  8. A.Goldberg macrumors 68020

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    I wouldn't be surprised if it goes through. If you want to look at healthcare monopolies look at ExpressScripts/Medco and CVS/Caremark.
     
  9. thermodynamic Suspended

    thermodynamic

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    #9
    Based on...?
     
  10. DrewDaHilp1 macrumors 6502a

    DrewDaHilp1

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    What about Wal-Greens? I thought my friend was joking about them being every where in Chicago.
     
  11. Huntn macrumors P6

    Huntn

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    #11
    Monopolies are always bad, an indicator of failure in any just society, an unhealthy concentration of power besides the wealth thrown at top executives is obscene. For anyone feeling religious, gluttony would be the appropriate description.
     
  12. A.Goldberg macrumors 68020

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    CVS has a vertical integration scheme, far more sophisticated than Walgreens and as a result has far more influence on the healthcare system.

    CVS/Caremark has their retail chain (CVS) and Pharmacy Benefit Manager (PBM)(Caremark). A PBM is an intermediary that processes prescription claims for your insurance. They choose for your health insurance what claim to accept and deny, determine pricing, the formulary, where you may and may not get your drugs, etc. They supposedly make drugs cheaper (and safer) but it's such a game of smoke and mirrors. When they make billions upon billions I doubt we as customers are saving.

    So anyways CVS has the second largest retail chain and I believe now the second largest PBM. The PBM can tell you to only get meds at cvs, or incentivize going to cvs, or make you use their mail order pharmacy, also owned by CVS. CVS processs more scripts than anyone else meaning they have ultimate authority on negotiating drug prices. They actually a few years ago did a joint venture with Cardinal Health (3rd party drug wholesaler) to increase their purchasing power which makes them Godzilla with price negociations. In acquiring MinuteClinic (basic urgent care kinda deal) they are also jumping into the primary care field. CVS also has their own distribution network, can directly negotiate prices with drug companies, and has their own generic OTC drugs. They also have their own Speciality Pharmacy network (pharmacies that sell exotic drugs with an annual cost of $50k-100k+) which is growing as they buy of specialty pharmacies, also increasing purchasing power.

    It's crazy how powerful they've become. I've met Tom Ryan, their old CEO (and one of the highest paid CEOs in history) responsible for turning CVS from a pharmacy chain to an amazingly sophisticated parasite. It would be one thing if customers actually saw the savings but CVS is actually one of the most expensive places to buy drugs. Anyways... I digress
     
  13. DrewDaHilp1 macrumors 6502a

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    TIL CVS is the Wal-Mart of the drug world.
     
  14. aaronvan Suspended

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  15. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    Why I always buy organic whenever I can.
     
  16. A.Goldberg macrumors 68020

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    Basically. Ironically though, Target Pharmacy very recently was bought out by CVS. So now all Target stores have CVS pharmacies.

    It's too bad, evidently Target was one of the best retail chains to work for. CVS is one of the worst.

    Big department stores and grocery stores generally don't put in pharmacies to make more money, it's to bring people into the store in the first place.
     
  17. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    I think you have posted on this before, but, it has been a while. If I have a $100 prescription (I am on an HDHP and basically pay for everything out of pocket), what fraction of my $100 goes to labor/pharmacist, how much to CVS, and how much to the pharmaceutical company?
     
  18. LizKat thread starter macrumors 601

    LizKat

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    A valuable digression! Anyway not really digression, rather it's a good outline of the basic model of monopoly construction. We're all sort of standing around jaws agape watching ourselves progress to the ultimate "two dogs, one empty bowl" scenario. It's not just the pharma world or the agrochem world, it's ubiquitous.

    There are various theories on how that final two dogs one empty bowl scenario cannot actually happen. That economies of scale have limits imposed by untoward consequences of consolidation. That the One Big Store in Houston that will supposedly sell the only cola drinks and snacks will never materialize because long before it's built, no one any longer will have a car or plane to get there, roads to drive on, pencils to sketch the list of materials needed, etc. And that will be because someone decided not to grow soybeans or not to make yellow paint or not to make pencils... the connection of everything to everything else

    I get those general ideas but I look around and say yah but... where is the cop who says ok stop, you're halfway to where no one can get to Houston right now! ...and it's going to take 200 years to fix that, so stop already. Make your biz run without having to borrow to buy another biz to gut and part out and make your shareholders think you're doing great.

    Where is that cop? We don't have that cop and we don't want that cop.

    So the beat goes on and we just watched a big dog eat big Monsanto's lunch. And here I was thinking Monsanto was the dog to watch. Silly me! Well Monsanto is still what to watch. But in the game of where's the nutshell with the pea under it, the Monsanto pea is under another shell now, and the name of the shell at the moment is Bayer.

    Stay tuned for the rebrand of the Monsanto assets. Watch that wallet in your back pocket there, too. All that staring at guys shuffling nutshells? It can be a little distracting.

    We need competitiveness, the energy and independence of the things our behemoths are buying up and then killing off by loading them up with debt and then peeling parts of them off to try to make what's left rise in value to shareholders. Behemoths think they innovate but lately they're more innovative about their financials than anything else. That focus is driving the bus. The banks, they have a pretty good lock on Bayer now.

    Imagine that, a bunch of banks with the power to label, or not label, your GMO veggies should you wish to figure out if that's what you're eating. Do you think a bank holding Bayer paper wants to risk Bayer's agrochem business taking a hit because consumers might look at a label on an otherwise "ordinary" vegetable and decide they'd prefer non GMO prouduce? Or organic produce? Do you think that bank will sit around watching GMO labeling efforts in Congress without stepping in to help find some experts who can assure Congress that there's no need to label the stuff because it's safe and the same as what your grandma grew?

    There's a huge pushback from the agribusiness sector already about labeling - organic, country of origin, GMO, it's all getting an effort to undo or limit new labeling requirements. And it's not about your health or your personal desire for information about what you eat. It's about profitability in the ag and chem sectors and therefore in the banking sector as well.

    I have no idea if the Bayer acquisition of Monsanto can pass muster with regulators. I expect it's more likely to get a pass in the USA then elsewhere though. The heavy involvement of banks is key.
     
  19. A.Goldberg macrumors 68020

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    #19
    Depends on the drug, the insurance company, the pharmacy, and where you are located. Different drugs have different reimbursement rates with different insurers, different insurance companies and their PBM's have different rates with different pharmacy networks. There's also deals made between the PBM's and major pharmacies/pharmacy networks and drug companies on wholesale drug pricing. So really it's a game of smoke and mirrors and the only ones that real know prices are cvs corporate employees.

    If you're paying cash or paying down your deductable, generally at CVS you end up paying the AWP aka "MSRP" of the drug, which is generally way higher than wholesale.

    Typically reimbursement for most drugs with an independent pharmacy (far less negotiating power than CVS) is the current wholesale price of the drug + anywhere from $1 on some drugs with Medicaid to $15, depending on what it is. Sometimes more, especially if the drug compounded. Then subtract out about $.50+ for the label and bottle and 37 page drug info packet.

    So in your case most of the money is going to the insurance/PBM if you're processing it through insurance. If you're paying cash it goes to CVS.

    However, if you have the Caremark PBM on your health insurance, then the money is mostly going to CVS/Caremark as they are the same company.
     
  20. satcomer macrumors 603

    satcomer

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    #20
    Yet you want a monopoly of government? :rolleyes:
     
  21. LizKat thread starter macrumors 601

    LizKat

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    Can't speak for @Huntn but I'd settle for simple majority most of the time. ;) That's something short of even oligarchy...
     
  22. satcomer macrumors 603

    satcomer

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    Yet you don't understand I given up on the both US Parties and want more than 5! :eek:
     
  23. LizKat thread starter macrumors 601

    LizKat

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    Well gee that fifth wheel out there right now, Mr. McMullin, he's probably intriguing ;) enough to count at least double or triple, isn't he? Depending if he really left that other day job behind? Actually I kind of like him. He's been in the political side of government (as opposed to the theoretically neutral spook side) long enough to understand how US legislation process works, but he hasn't been out there in the political candidate spotlight long enough to have become a completely scripted automaton. It's kind of refreshing. You hear a little more about the sausage making from him than if you listen to the major party candidates, probably because of his former GOP policy job. We might not like how sausage is made but the candidates should understand that process exists and is necessary. This drift I don't get from Mr. Trump...

    Kidding aside, and back to oligarchies if not just the ones Bayer and Monsanto are in, it's interesting that we don't get to elect our lobbyists. Even though lobbyists have to register, and even though the term "special interests" gets bandied around on television talk shows or even in sound bite interviews of politicians (which when you think about it takes some brass), it's not clear to me that most or even a majority of American voters understand the importance that official lobbying has come to occupy in the shaping of modern US government.

    It's too late and too expensive to subtract formal lobbyists from the process altogether, but I wish it were more transparent. For instance in putting the original post for this thread together, when I included info on the financial advisors for this Bayer-Monsanto deal, I was actually thinking gee you know if would be great if, when they print up the bill that the president is expected to sign after both houses have passed a piece of legislation, the document formally identified the individuals and organizations who supported or opposed the bill as registered lobbyists.

    Then I realized that "formally registered" lobbyists are hardly the bulk of the unseen influence problem in the sausage-making of USA law. And even when Congress itself tries to reform the process, the self-interests of members seems to outweigh the resulting legislation...

    As for what happens when lobbyists obligingly write the language for a bill, and the bill is regulatory, and the lobbyist represents the industry that the proposed bill will regulate? I'm sure the banks aren't done trying to undo disliked effects of Dodd-Frank legislation:

     
  24. Huntn macrumors P6

    Huntn

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    #24
    Why don't you say what you mean and be clear about the accusation?
     

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