1 00:00:01,320 --> 00:00:04,840 Speaker 1: This is taking stock with Gadleys and grim Box on 2 00:00:04,920 --> 00:00:09,200 Speaker 1: Bloomberg Radio. Is it really over? Is buyer really going 3 00:00:09,280 --> 00:00:13,360 Speaker 1: to pay sixty six billion dollars for Monsanto? Let's find 4 00:00:13,400 --> 00:00:16,520 Speaker 1: out more from Christopher Perella. He is US chemicals analyst 5 00:00:16,600 --> 00:00:20,639 Speaker 1: for Bloomberg Intelligence. Christopher, thank you very much for being 6 00:00:20,760 --> 00:00:24,200 Speaker 1: with us. Before we get to the details of the deal, 7 00:00:24,520 --> 00:00:28,880 Speaker 1: tell me exactly your perspective from the chemical business point 8 00:00:28,880 --> 00:00:32,159 Speaker 1: of view. Why would the deal get done at a 9 00:00:32,240 --> 00:00:36,040 Speaker 1: time when crop prices are dropping? Doesn't that mean that 10 00:00:36,120 --> 00:00:39,960 Speaker 1: farmers have less money to spend on the very products 11 00:00:40,000 --> 00:00:43,240 Speaker 1: that buyer is looking to acquire. Oh, that's a good point, Pim, 12 00:00:43,240 --> 00:00:46,680 Speaker 1: and I think the key here is to U to 13 00:00:46,960 --> 00:00:52,320 Speaker 1: give farmers and all in bundle of seeds and crop chemicals. Uh, 14 00:00:52,640 --> 00:00:55,400 Speaker 1: serve up an agronomic solution of farmers that you can 15 00:00:55,440 --> 00:00:59,000 Speaker 1: package and sell out and drive sales growth that way, 16 00:00:59,040 --> 00:01:02,000 Speaker 1: while the mark waits for crop prices to improve and 17 00:01:02,080 --> 00:01:07,199 Speaker 1: thus the outlook for all these companies to improve. So uh, 18 00:01:07,240 --> 00:01:10,000 Speaker 1: it's uh, well, just let's start with some of the 19 00:01:10,240 --> 00:01:13,039 Speaker 1: nuts and bolts. The deal A good deal, I guess 20 00:01:13,080 --> 00:01:15,040 Speaker 1: it's a good deal in the basics sense. It's going 21 00:01:15,080 --> 00:01:16,720 Speaker 1: to get done. And there's been quite a bit of 22 00:01:16,720 --> 00:01:20,520 Speaker 1: back and forth. Right, it does here that it's going 23 00:01:20,600 --> 00:01:23,400 Speaker 1: to get done. Um. Some of the risks so behind 24 00:01:23,440 --> 00:01:26,200 Speaker 1: the deal a lot of debt that has to go out. 25 00:01:26,319 --> 00:01:28,720 Speaker 1: Buyer has to do some heavy lifting to finance this 26 00:01:29,360 --> 00:01:33,479 Speaker 1: thirty nine billion in debt nineteen billion and mandatory convertible 27 00:01:33,520 --> 00:01:36,640 Speaker 1: bonds and rights issues. Um. And if they can maintain 28 00:01:36,720 --> 00:01:38,679 Speaker 1: investment grade rating, which is going to be a key 29 00:01:38,720 --> 00:01:41,200 Speaker 1: to the deal, I think that helps them. Maybe uh 30 00:01:41,280 --> 00:01:44,480 Speaker 1: with the ECB and their corporate bond purchase program that 31 00:01:44,560 --> 00:01:47,319 Speaker 1: might that might also come into play as part of 32 00:01:47,319 --> 00:01:49,760 Speaker 1: this deal as well. Well. Perhaps what they could do 33 00:01:49,880 --> 00:01:53,240 Speaker 1: is they could actually sell the bonds directly to the 34 00:01:53,240 --> 00:01:57,480 Speaker 1: European Central Bank. Right, quite quite possible with the disclaimer 35 00:01:57,520 --> 00:02:00,600 Speaker 1: that I am not a credit anim us in Europe, 36 00:02:00,600 --> 00:02:03,400 Speaker 1: but that that that does seem like a reasonable suggestion. 37 00:02:03,880 --> 00:02:05,480 Speaker 1: All right, So now go into a little bit of 38 00:02:05,520 --> 00:02:08,960 Speaker 1: detail in terms of the businesses that will be combined 39 00:02:09,200 --> 00:02:13,160 Speaker 1: and what the future company might look like. Right. So 40 00:02:13,440 --> 00:02:16,920 Speaker 1: from the egg perspective, which is the focus of this deal, 41 00:02:17,000 --> 00:02:21,160 Speaker 1: you have Munsano, the leader in biotech seeds um and 42 00:02:21,240 --> 00:02:24,320 Speaker 1: buyers number three in the crop chemical world, So you're 43 00:02:24,320 --> 00:02:27,960 Speaker 1: combining seeds and sprays. But what it really does is 44 00:02:28,560 --> 00:02:31,280 Speaker 1: that farmers care about it. In turn, regulators care about 45 00:02:31,400 --> 00:02:34,840 Speaker 1: is it gives it. It's it's yield in the field 46 00:02:34,919 --> 00:02:38,920 Speaker 1: for farmers. UM Whether you develop a biotech seed that 47 00:02:39,000 --> 00:02:41,800 Speaker 1: helps the plant grow better or that fights off disease 48 00:02:41,880 --> 00:02:44,320 Speaker 1: or pesticides, or if you develop a chemical that does 49 00:02:44,400 --> 00:02:48,480 Speaker 1: something similar doesn't matter to the farmer. It's it's all 50 00:02:48,520 --> 00:02:52,160 Speaker 1: about driving yields for the farmer, and regulators probably will 51 00:02:52,160 --> 00:02:54,720 Speaker 1: look at it from from a similar perspective In terms 52 00:02:54,760 --> 00:02:58,320 Speaker 1: of um. Seeds and crop chemicals really do compete against 53 00:02:58,360 --> 00:03:01,160 Speaker 1: each other. It's just a different avenues to to get 54 00:03:01,200 --> 00:03:04,440 Speaker 1: that yield. Uh, and higher yields higher income for the 55 00:03:04,480 --> 00:03:07,240 Speaker 1: farmers out in the field. Now that being said, those 56 00:03:07,240 --> 00:03:11,760 Speaker 1: two businesses put together, combined with buyers existing farm of business, 57 00:03:11,800 --> 00:03:14,480 Speaker 1: it's it's basically the company is going to be half 58 00:03:14,480 --> 00:03:20,359 Speaker 1: pharmaceuticals and half a can biotech seeds, which raises a 59 00:03:20,440 --> 00:03:23,480 Speaker 1: number of questions about the long term viability of of 60 00:03:23,480 --> 00:03:28,800 Speaker 1: of a model like that. So, uh, the big picture 61 00:03:28,960 --> 00:03:33,079 Speaker 1: that some are framing is that this is something that 62 00:03:33,280 --> 00:03:38,080 Speaker 1: is going to reshape the farming industry a whole new 63 00:03:38,120 --> 00:03:41,520 Speaker 1: way of doing things. Uh, do you buy onto this 64 00:03:41,600 --> 00:03:43,480 Speaker 1: or is that? Is it really going to be that 65 00:03:44,680 --> 00:03:48,680 Speaker 1: much of a kind of landmark deal to make a 66 00:03:48,800 --> 00:03:52,120 Speaker 1: new kind of approach here. Um, it's not a new 67 00:03:52,280 --> 00:03:55,160 Speaker 1: kind of approach. It's the the ongoing evolution. So I 68 00:03:55,160 --> 00:03:58,440 Speaker 1: wouldn't say that it's a a leap forward so much 69 00:03:58,480 --> 00:04:00,680 Speaker 1: as it it's the way that the market seems to 70 00:04:00,680 --> 00:04:04,960 Speaker 1: be heading. With Syngenta pioneering the model a few years 71 00:04:05,000 --> 00:04:07,920 Speaker 1: back they started combining the seeds marketing, the seeds and 72 00:04:07,920 --> 00:04:11,960 Speaker 1: the chemicals, UM Down and do Pont getting together to 73 00:04:12,040 --> 00:04:14,760 Speaker 1: create all three companies out of two but one of 74 00:04:14,800 --> 00:04:18,320 Speaker 1: which will be an exact lookalike with seeds and crop 75 00:04:18,400 --> 00:04:22,880 Speaker 1: protection chemicals put together. It's it's an evolution in terms 76 00:04:22,880 --> 00:04:27,200 Speaker 1: of R and D where the the they're developing seeds 77 00:04:27,240 --> 00:04:31,080 Speaker 1: now that respond or that are tolerant of of certain chemicals. 78 00:04:31,080 --> 00:04:34,120 Speaker 1: So you're you're locking in a farmer not only to 79 00:04:34,200 --> 00:04:36,919 Speaker 1: the seed, but then that seed is locking in hopefully 80 00:04:36,960 --> 00:04:38,839 Speaker 1: your own chemical that the farmer is going to have 81 00:04:38,880 --> 00:04:42,760 Speaker 1: to use on that. That raises another regulatory issue down 82 00:04:42,800 --> 00:04:45,440 Speaker 1: the road as well. But all these all these are 83 00:04:45,560 --> 00:04:47,640 Speaker 1: driving yield in the field for the farmer, and then 84 00:04:47,880 --> 00:04:49,880 Speaker 1: sort of the evolution of the business is where where 85 00:04:49,880 --> 00:04:53,680 Speaker 1: it's headed. Is there a possibility that regulators will come 86 00:04:53,720 --> 00:04:55,520 Speaker 1: back and say, even though there's not a lot of 87 00:04:55,600 --> 00:04:59,919 Speaker 1: overlap in the business of Buyer and UH and Monsanta, 88 00:05:00,520 --> 00:05:02,799 Speaker 1: that the combined company is going to account for thirty 89 00:05:02,920 --> 00:05:09,160 Speaker 1: percent of global crop inputs business, and that they just 90 00:05:09,279 --> 00:05:12,800 Speaker 1: will not allow that. Inasmuch as we've seen these other 91 00:05:12,839 --> 00:05:17,600 Speaker 1: as you describe previous giant chemical deals right right, and 92 00:05:17,600 --> 00:05:21,120 Speaker 1: and people should note that Monsanto Buyer is number four 93 00:05:21,240 --> 00:05:25,000 Speaker 1: in the line of chemical deals, behind Keim China's and 94 00:05:25,080 --> 00:05:31,200 Speaker 1: gentadpot and Pottish Corporate Agrium in the fertilizer space as well. UM. 95 00:05:31,240 --> 00:05:35,320 Speaker 1: Some areas that that would probably engender regulatory scrutiny right 96 00:05:35,360 --> 00:05:39,400 Speaker 1: off the bat would be US cotton seed, where buyer 97 00:05:39,480 --> 00:05:42,320 Speaker 1: actually bought its cotton seed business from Montsanto about a 98 00:05:42,360 --> 00:05:46,279 Speaker 1: decade ago. UH Canola, some swaving oils and and there's 99 00:05:46,320 --> 00:05:49,760 Speaker 1: some some crop chemical overlap as well. And then that 100 00:05:49,839 --> 00:05:54,840 Speaker 1: also raises the regulatory um outlook of looking at these 101 00:05:55,080 --> 00:05:57,560 Speaker 1: deals in total, all four deals going off at the 102 00:05:57,600 --> 00:06:01,039 Speaker 1: same time, how does that reshape the market, and you 103 00:06:01,080 --> 00:06:04,160 Speaker 1: do raise a very very good point about the entire 104 00:06:04,200 --> 00:06:08,200 Speaker 1: global crop input market being UH controlled by one player 105 00:06:08,200 --> 00:06:10,280 Speaker 1: there at that point. So there's a lot of a 106 00:06:10,279 --> 00:06:13,760 Speaker 1: lot of question marks, UH from a regulatory perspective. With 107 00:06:13,800 --> 00:06:16,440 Speaker 1: the steel where do you see the most growth for 108 00:06:16,480 --> 00:06:22,560 Speaker 1: this company? UH? Monsanto of course has UH I'd say 109 00:06:22,760 --> 00:06:25,440 Speaker 1: for people who are concerned about things like gene and 110 00:06:25,480 --> 00:06:30,919 Speaker 1: genetically modified organisms and crops, Europeans seem to be have 111 00:06:31,080 --> 00:06:33,039 Speaker 1: kind of led the way on on that one. Is 112 00:06:33,080 --> 00:06:37,280 Speaker 1: it less of an issue in Asia? In Africa? The 113 00:06:37,279 --> 00:06:42,640 Speaker 1: concern about round up it's herbicide UH glyphosphate, right, the 114 00:06:42,680 --> 00:06:46,039 Speaker 1: trade name is round up continues to spark not only 115 00:06:46,080 --> 00:06:49,200 Speaker 1: opposition from opponents of GMO, but more and more health 116 00:06:49,240 --> 00:06:52,800 Speaker 1: and environment environment experts globally are jumping on the bandmag 117 00:06:52,839 --> 00:06:55,239 Speaker 1: and at some point does that catch up with this company. 118 00:06:56,120 --> 00:06:59,640 Speaker 1: There's a great, great point, a very important issue there. 119 00:07:00,200 --> 00:07:05,719 Speaker 1: The um, the growth um. Depending on the country and 120 00:07:05,760 --> 00:07:09,640 Speaker 1: depending on the politics of the country, the growth of 121 00:07:09,640 --> 00:07:14,480 Speaker 1: biotech seeds is either embraced or of the complete opposite 122 00:07:14,480 --> 00:07:17,680 Speaker 1: of that um, depending on the region and how how 123 00:07:17,760 --> 00:07:20,880 Speaker 1: much they need UH. The the input, the yield there 124 00:07:20,920 --> 00:07:23,640 Speaker 1: from from the seeds. Um So, it's it's going to 125 00:07:23,680 --> 00:07:26,360 Speaker 1: be continue to be a good growth story or the 126 00:07:26,520 --> 00:07:29,440 Speaker 1: driving growth story is really the adoption of biotech seeds 127 00:07:29,440 --> 00:07:33,600 Speaker 1: and the upgrading of those said seeds. UH. The roundup 128 00:07:33,640 --> 00:07:37,080 Speaker 1: product is the most applied herbicide in the in the world, 129 00:07:37,720 --> 00:07:42,400 Speaker 1: and it is UH Monsano seeds are basically any genetically 130 00:07:42,400 --> 00:07:45,360 Speaker 1: modified seed and I'm generalizing a little bit, UH is 131 00:07:45,520 --> 00:07:48,720 Speaker 1: tolerant of that herbicide. It's a it's a key UH 132 00:07:48,760 --> 00:07:53,520 Speaker 1: input in the global agg business. And it's that it's 133 00:07:53,560 --> 00:07:56,080 Speaker 1: been that way for almost twenty years now at this point. 134 00:07:56,640 --> 00:07:59,080 Speaker 1: Um So, there there is pushback and it depends on 135 00:07:59,120 --> 00:08:01,480 Speaker 1: the region, but it's it's going to be a continued 136 00:08:01,520 --> 00:08:05,760 Speaker 1: growth driver for this new company going forward. Have we 137 00:08:05,840 --> 00:08:10,360 Speaker 1: seen this type of consolidation before in the chemicals industry? Uh? 138 00:08:10,560 --> 00:08:13,280 Speaker 1: This is UH this is sort of a unique time 139 00:08:13,280 --> 00:08:15,200 Speaker 1: in the chemicals industry in the last year or so, 140 00:08:16,000 --> 00:08:18,880 Speaker 1: UM not that I can remember. It's been a while 141 00:08:19,320 --> 00:08:22,160 Speaker 1: UH for for this level of consolidation. But as as 142 00:08:22,200 --> 00:08:26,239 Speaker 1: growth slows and people are looking for better ways to 143 00:08:26,280 --> 00:08:29,200 Speaker 1: put their balance sheets to work, cheap debt and slow growth, 144 00:08:29,240 --> 00:08:32,840 Speaker 1: I think it's a resulting in this wave of mergers here? 145 00:08:33,760 --> 00:08:37,400 Speaker 1: And what are you hearing from analysts beside yourself? You're 146 00:08:37,400 --> 00:08:39,839 Speaker 1: certainly an analyst Bloomberg Intelligence, But what what? What is 147 00:08:39,880 --> 00:08:42,319 Speaker 1: this sort of the consensus or is there a consensus 148 00:08:42,320 --> 00:08:47,199 Speaker 1: on the street? Um? I think the the street consensus 149 00:08:47,240 --> 00:08:51,280 Speaker 1: could could be characterized as a coin flip between people 150 00:08:51,360 --> 00:08:54,120 Speaker 1: that like the deal and don't like the deal, So 151 00:08:54,160 --> 00:08:57,640 Speaker 1: that I guess the consensus is there's an even lack 152 00:08:57,679 --> 00:09:00,200 Speaker 1: of consensus on the street as as to the the 153 00:09:00,240 --> 00:09:02,280 Speaker 1: merits of the deal and who's getting the better of it. 154 00:09:02,679 --> 00:09:06,400 Speaker 1: A lack of consensus for a sixties six billion dollar 155 00:09:06,600 --> 00:09:09,760 Speaker 1: deal for mont Santo and UH and buyer. Is there 156 00:09:09,760 --> 00:09:12,480 Speaker 1: anybody left? I mean, every now and again I hear 157 00:09:12,640 --> 00:09:15,360 Speaker 1: be a SF might have been interested in a bid 158 00:09:15,440 --> 00:09:20,920 Speaker 1: for Monsanto? Is there anybody left left to buy? Um? 159 00:09:20,960 --> 00:09:23,920 Speaker 1: Not really, you would have to go much smaller in 160 00:09:24,040 --> 00:09:28,040 Speaker 1: scale among the crop chemical companies, UH and the fertilizer 161 00:09:28,040 --> 00:09:32,280 Speaker 1: companies to where these deals are taking place. B A 162 00:09:32,440 --> 00:09:34,880 Speaker 1: s F has gone it alone. They actually have a 163 00:09:34,880 --> 00:09:38,440 Speaker 1: an R and D relationship with Montsanto, which I guess 164 00:09:38,440 --> 00:09:41,800 Speaker 1: they'll now have with their their fellow countrymen down the road. 165 00:09:41,800 --> 00:09:46,560 Speaker 1: There UM once those deals consummated. But there's there's only 166 00:09:46,559 --> 00:09:49,640 Speaker 1: really three or four large players of a global scale 167 00:09:50,080 --> 00:09:52,600 Speaker 1: in the market, with a sort of a mere mid 168 00:09:52,640 --> 00:09:56,240 Speaker 1: tier UH to follow. But there's not much left, all right, 169 00:09:56,600 --> 00:09:59,760 Speaker 1: Christopher Prela, you certainly covered that story up one side 170 00:09:59,800 --> 00:10:03,200 Speaker 1: and down the other. Buyer agreeing to buy Monsanto in 171 00:10:03,240 --> 00:10:06,360 Speaker 1: a sixty six billion dollar deal will be the largest 172 00:10:06,400 --> 00:10:08,760 Speaker 1: take over the year if it goes through. I'm Cafe Mason, 173 00:10:08,800 --> 00:10:10,600 Speaker 1: pim Fox, and this is Bloomberg.