Introduction
One of the most challenging problems we face today is agriculture. A merger of two businesses is the focus of this case study. The CEOs of these firms are Baumann Werner of Bayer and Grant Huge of Monsanto, headquartered in Germany and the United States, respectively. To become the world’s most significant integrated pesticide and seed enterprise, the deal was signed in September 2016. With Monsanto’s seed and trait supremacy and Bayer’s crop protection product leadership in critical locations throughout the globe, the combined company would be more potent than either company alone. This case study will cover several questions, including reasons for Bayer entering the extremely competitive agrochemical sector when its pharmaceutical industry was still strong and if Bayer made the proper option to merge with Monsanto to expand into agrochemistry. If the merger deal is approved, it will look at what it will mean for agrochemicals in terms of market concentration, challenges in the regulatory arena, and moral considerations associated with an oligarchic market. Finally, it will discuss how Monsanto should proceed in terms of moving forward if the deal is not approved and how the combined entity will be able to create enough synergies.
Reasons for Bayer Diversifying into the highly Competitive Agrochemical Industry
Bayer diversified into the agrochemistry industry because the union between the two companies would recruit an enormous modification within the company and the worldwide agrochemical business. Moreover, the company’s diversification was also necessitated by the need to compete in a highly competitive market, where technological progress was significant. Crop protection and production might be improved, and pests’ resistance to products could be countered by enhancing existing technology. As a result of the company’s diversification, it will be better able to invest in R&D and continue to provide farmers with new and improved goods. Bayer’s diversification is motivated by various additional factors and a desire to improve profitability (Hareesh, 2020). Among other things, diversification may reduce risks if the industry collapses. It can also significantly boost brand image and firm profitability by providing a more comprehensive range of goods and services. Bayer’s diversification strategy will also be applied when it comes to protecting itself from competitors. Diversification will help Bayer as a firm to use spare cash flows in a slow-growing sector.
When diversifying, Bayer will be able to lower the amount of risk it is exposed to hence optimizing its earnings. Although there are some risks the organization can’t avoid, such as systemic hazards, it may hedge against unsystematic hazards like commercial or financial threats. Diversification will allow Bayer to minimize risk and lessen the volatility of its goods price fluctuations. However, dangers can never be eradicated, no matter how dispersed Bayer is. The trick will be to establish a comfortable balance between risk and reward. This will guarantee Bayer meets its financial objectives while still obtaining a decent night’s rest.
Bayer’s Verdict to expand into Agro-chemicals by Amalgamating with Monsanto
Bayer made the correct option to expand into agrochemicals since the market had continued to experience industrialization and the usage of artificial enrichers on plants in America had climbed almost twice. At the same time, chemical pesticides rose by over 140 percent. Their decision to diversify was right because consumers and farmers in the agrochemicals sector are looking for safer agricultural goods and biopesticides, which will be able to provide that need while also satisfying regulatory requirements that have been placed on chemical pesticide usage. In nations with increasing per capita incomes, there has been a rise in the consumption of organic products due to a growing desire for healthier, chemical-free food. In addition, Bayer felt the need to broaden its business by acquiring Monsanto (Hareesh, 2020). As a result, new approaches will be adopted by both the corporations by providing the service and the people who utilize it, increasing the dissemination of the latest technology. Because of their brands and distribution networks, Bayer will also gain from the entry of big chemical firms in the biopesticide category.
Consequences of Market Concentration for the Agrochemical industry following the Merge
In conclusion, based on the data, the research found a rise in the combined market share of the merging businesses and a drop in the number of industry participants. Ultimately, Bayer and Monsanto will dictate essential conditions of trade, which will impact several equilibrium metrics such as product pricing, the number of products released in the market, the quantity produced, and the social welfare. Before a merger or acquisition is approved, all competition policy practitioners must thoroughly study. In light of the limitations of the competition policy merger simulation model, which is limited to enterprises with a market share of 1% or above, a mixed model approach may be utilized to arrive at findings that are as close to accurate as possible. The agricultural business has been the target of significant criticism due to regulatory and ethical issues. Criticism is centred on monocultures, which diminish plant variety (and consequently the availability of seeds), animal devastation, and increased dependence on multinationals by local farmers (Hareesh, 2020). The notion of “seed freedom” is advocated by some activists to avoid corporate control over seed patents. In contrast, others decry the dangers that chemical seed packaging poses to human health and living environments, such as pesticide packing. GMOs are also a hot-button issue. Genetically modified organisms (GMOs) are creatures that have had their DNA altered by scientists. People are concerned about the widespread usage of genetically modified organisms (GMOs) in the seeds market because of the lack of understanding about the effects of GMOs on public wellness and soil conditions.
Endorsements for Bayer to advancing if the Merge Contract is permitted
If the Merger Deal is authorized, Bayer’s recommendations for moving ahead will include safeguarding the acquisition’s value by making proper staffing selections. Only if the value of the Monsanto firm and the importance of synergy effects surpass the purchase price and obligations such as corporate pensions, which are also transferred on to the buyer, can the acquisition of Monsanto result in capital growth. As a result, personnel considerations are essential for determining a reasonable acquisition price and realizing expansion and cost synergy impacts. The acquisition strategy requires that the personnel department be integrated into the procedure appropriately.
The combined entities create sufficient synergies by implementing the acquisition strategy effectively. Changes in procedures, organizations, consumers, and products are necessary before synergies can take hold, and this necessitates new expectations of workers. This is true for both the Bayer and Monsanto companies’ workforces. For staff to be motivated to carry out the acquisition’s objectives, the personnel department must tailor training programs to the acquisition’s goals (Hareesh, 2020). To attain this goal, the M&A’s purposes must be promptly communicated to the personnel department. In most mergers and acquisitions, the purchase price is calculated by extrapolating future growth projections. In this procedure, crucial variables are appraisal intervals and a schedule specifying the timeframes specific activities have to be executed. The role of the personnel division consists of providing these estimates with relation to the growth of staff expenses and other liabilities. At the same time, it needs to examine whether the timing is feasible. The validity of the estimates does not least rely on the degree of cooperation between the many organizational units such as strategy planning, financial department, job analyst, legal department and all other lines of business engaged
Monsanto will have to try and avoid disruptions of ordinary business. For that avoidance to be a success, the firm must function smoothly. Customer service should not be negatively affected by the acquisitions and mergers of the acquired and the acquired firm. If employees are concerned about their futures, this information will be essential. To minimize interruptions, the human resources department should implement a staff control plan tailored to the current scenario or develop an effective communication strategy. Among other things, the buyer’s increased value depends on how fast synergies take effect. Thus the organization must also consider speed.
Conclusion
Conclusively, Bayer diversified into the agrochemistry industry because the union between the two companies would recruit a huge modification within the company and the worldwide agro-chemical business. Bayer decided rightfully to expand into agro-chemicals since the market had continued to experience industrialization and the usage of artificial fertilizers on crops. In conclusion, based on the data, the research found a rise in the combined market share of the merging businesses, but also a drop in the number of industry participants
Work Cited
Rebière, Philippe, and Hareesh Mavoori. “The Bayer–Monsanto fusion: countering brand tarnishing and rebuilding reputation.” Journal of Business Strategy (2020).
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