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Monsanto Deal Would Cap Third Record Quarter for Chemicals M&A

The potential takeover of Monsanto Co. by a German competitor looks to extend a record-setting pace for consolidation in the chemical sector, as low crop prices drive megadeals in agriculture.

Chemical mergers valued at $97 billion were announced in the fourth quarter of 2015, more than double any preceding quarter since at least 2004, according to data compiled by Bloomberg. Deals struck in the first quarter of this year approached $68 billion, the second-highest value on record, and the current period could rival that amount should Bayer AG announce a purchase of Monsanto, a company currently valued at $43 billion.

The potential Monsanto purchase, like all the recent big industry tie-ups, is being driven by low prices for commodities like corn and soybeans, which have slashed farmers’ incomes and cut their spending on genetically modified seeds and pesticides. When Dow Chemical Co. and DuPont Co. agreed in December to a historic merger valued at $65.6 billion, the talks began as a discussion of combining agriculture businesses, where earnings growth has stalled. The companies plan on following the merger with a three-way split, including creation of the world’s largest agriculture company.

Dow-DuPont Competition

Bayer is exploring a bid for Monsanto in a deal that would create the world’s largest supplier of seeds and pesticides, according to people familiar with the matter who asked not to be named because the deliberations are private. BASF SE, the world’s largest chemical maker, also is considering a takeover offer for Monsanto, StreetInsider reported late Wednesday.

“To compete with the Dow-DuPont merged agriculture business, Monsanto needs a more complete crop-protection offering, which it would get through a combination with Bayer or BASF,” Sanford C. Bernstein & Co. analysts led by Jeremy Redenius and Jonas Oxgaard said Thursday in a note.

Monsanto has said it wants to expand in pesticides to provide a more complete solution to farmers’ problems. Monsanto makes Roundup, the world’s best-selling weed killer, but not much else in crop protection. Having more insecticides, fungicides and other chemicals would increase the appeal of its precision-agriculture platform, which uses GPS and data on soil and weather to finely adjust how farm equipment plants seeds and applies pesticides.

China Biotech

The biggest chemical transaction in the first quarter was China National Chemical Corp.’s February agreement to pay $43 billion for Syngenta AG of Switzerland. The acquisition provides ChemChina, as the state-owned company is known, with the world’s largest producer of pesticides and technology for creating biotech seeds. Those assets would help China combat weeds and insects with less labor as farm workers increasingly turn to higher-paying city jobs even as feed grain demand is rising with a growing middle class that eats more meat. Biotech for crops was highlighted in China’s most recent draft Five-Year Plan.

Not all recent chemical deals were related to agriculture. Air Liquide SA of France agreed in November to buy Pennsylvania-based Airgas Inc. for $10.5 billion to surpass Linde AG as the top provider of industrial gases such as hydrogen. Cleveland-based Sherwin-Williams Co. would become the world’s largest paint maker with its March agreement to acquire Minneapolis-based Valspar Corp. for $9.3 billion. Historically low borrowing costs are probably adding incentive to the sector’s record dealmaking.

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