* Rationale is to develop new product combinations
* Such products could be years away; some farmers sceptical
* Rival BASF says better to keep products separate
By Ludwig Burger
FRANKFURT, Sept 16 Bayer's $66
billion purchase of Monsanto amounts to a long-term bet
that farmers will grow to trust combinations of seeds and
pesticides rather than continue to pick from ranges of separate
In the short term, the German drugs and chemicals firm hopes
to benefit from a marketing and sales force that can promote
combinations of the two groups' existing products.
But Bayer has said the main reason for buying the world's
biggest seeds company is to develop entirely new product
combinations, such as weed killers and crops that resist them.
Some farmers, though, are wary about a merger between two of
the largest players in the agricultural supplies market,
concerned they will have less choice and that product bundles
will be expensive.
"They sell you the seed and their special herbicide. I was
offered one deal of that (by Monsanto) and I turned it down
because it locked me into one supplier," said North Dakota corn,
soy and grain grower Justin Sherlock. "You can't find it from a
The idea of integrating different farm products has been
around for a while, but has a patchy record.
Switzerland's Syngenta has pursued it since 2011,
with some success in emerging markets in Asia and South America,
but less in the all-important North American market.
That depressed its share price to a point where it became a
bid target - first for Monsanto and then, after that failed,
ChemChina, which agreed a takeover deal last year.
Bayer, the world's No.2 crop chemicals firm behind Syngenta,
argues better research tools such as gene editing mean
compelling product combinations could only be a few years away.
Chief Executive Werner Baumann, a collector of 1980s cars,
explains his vision with a repair-and-paint shop analogy: "You
can go and buy your own diluents (thinning agent), the first
cover, the clear coat and so on and you're not sure how the
different components interact with each other and you don't have
the guarantee of an optimal surface. What you have with an
integrated offering is the promise of an optimal outcome."
It's a big bet.
Bayer's bid for Monsanto is the largest ever all-cash
takeover offer. Analysts at Deutsche Bank and Jefferies have
warned the financial burden could drain funding from Bayer's
pharmaceutical business, which is struggling to sustain the rate
of past blockbuster drug launches.
The German company is paying a hefty premium now for the
promise of a business model that some say could be up to a
decade away. That's in contrast to Dow Chemical and
DuPont, whose shareholders will share future spoils and
risks of a combined agribusiness in a merger of equals.
What's more, Germany's BASF, the world's No.3
pesticides maker, thinks product bundles are a non-starter.
"Farmers don't want to lock into any particular combination
of seeds and crop chemical at an early stage," said Markus
Heldt, the head of BASF's crop protection business.
"You can sell the two in the bundle, but only if you happen
to have the best product in each category. Not even the biggest
companies could secure such a dominant position."
Combining products has long been a goal for Bayer, and its
determination to agree a deal with Monsanto - which saw it raise
its bid three times - was driven partly by concerns it could get
left behind by a rival tie-up, sources close to the matter say.
During Monsanto's pursuit of Syngenta last year, the head of
Bayer's crop protection division Liam Condon branded the
proposed combination in internal discussions as a "behemoth" in
the making, according to people who spoke to him at the time.
Monsanto CEO Hugh Grant agrees product bundles are the
future, and said on Wednesday there was no longer any point
developing new products with seeds and chemicals as separate
"Consolidation in the industry is a prerequisite to further
investment in R&D," he added.
But according to one industry expert who has advised all the
major global suppliers, it could take 7-10 years for newly
developed product combinations to have an impact. He spoke on
condition of anonymity.
Complicating their quest for a new business model, Bayer and
Monsanto have said digital services - a combination of data
gathering, predictive software and precision farming gear - will
have to serve as a "hub" in any product suite of farm supplies.
Also, innovation is not just the preserve of established
players, with independent, venture capital-backed start-ups
looking to break into the market too.
For the time being, though, farmers may take some convincing
they should tie their fortunes to a product suite from a single
"It might make sense in some cases, but in the end farmers
should decide for themselves where to buy their crop protection
and their seeds," said Bernhard Kruesken, secretary general of
Germany's farmers association.
(Additional reporting by Diane Bartz in Washington, Patricia
Weiss in Frankfurt and Ben Hirschler in London; Editing by Mark