Newspaper article St Louis Post-Dispatch (MO)

Bayer's Farming-Plus-Pharma Strategy Is out of Step

Newspaper article St Louis Post-Dispatch (MO)

Bayer's Farming-Plus-Pharma Strategy Is out of Step

Article excerpt

If it succeeds in buying Monsanto, German company Bayer will be doubling down on a strategy its competitors abandoned long ago.

It's called life sciences, and it involves making drugs to improve human health plus the seeds and chemicals needed to grow our food. Pharmaceutical chemistry and farm chemistry seem like a logical combination for a research-oriented company with a patient, forward-thinking management team.

That's the theory, anyway. Monsanto itself was a pioneer in life sciences thinking in the 1990s when it bought a series of seed companies to go with its ownership of drugmaker G.D. Searle.

It didn't end well. Burdened with debt from all the acquisitions, Monsanto would merge with Pharmacia, which was acquired by Pfizer in 2003. Pfizer had no interest in a cyclical agriculture business with big public-perception issues, so it cut loose a new Monsanto as a separate company.

European competitors Novartis, AstraZeneca and Sanofi would also get rid of their big agriculture divisions to become pure-play drug companies, and now U.S. companies Dow Chemical and DuPont are bowing to similar market logic. They plan to merge and then split into three pure-play companies focused on agriculture, basic materials and specialty chemicals.

Bayer, though, continues to insist that one plus one are worth more than two. It gets 45 percent of its revenue from pharmaceuticals and 30 percent from agriculture, with the rest coming from animal medicines and consumer products.

If it succeeds in buying Monsanto, which rejected an initial offer worth $62 billion, agriculture will be half of the combined company. Shareholders who bought into a company dominated by pharmaceuticals would find themselves owning something dramatically different.

Damien Conover, a pharmaceutical analyst at Morningstar, thinks the changing business mix is one reason along with worries about the steep price tag why Bayer shares are down 11 percent since its Monsanto bid came to light.

"When we think about Bayer, a lot of the acquisitions and capital deployment have been on the health care side," Conover said. "When you see a big shift in priorities, there is probably going to be a lot of concern among some shareholders. …

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