Here's why some analysts are scratching their heads over Bayer-Monsanto's pledge to Trump
President-elect Donald Trump met with the chief executives of German chemical giant Bayer (XETRA: BAYN-DE) and agriculture company Monsanto (NYSE: MON) last week and discussed commitments to the U.S. following their planned $66 billion merger. The Trump team says as a result of the meeting, the companies made new pledges for jobs and research spending in the U.S.
Analysts say not so fast.
In a call with reporters Tuesday, transition team spokesman Sean Spicer said Bayer and Monsanto committed to $8 billion in new R&D spending in the U.S., as well as to retain 100 percent of Monsanto's U.S. workforce, create 3,000 new U.S. high-tech jobs and to keep Monsanto's headquarters in St. Louis. None of this, Spicer said, had been in the works previously.
Some of that has analysts scratching their heads. When the companies announced the proposed deal in September, they said the combined agriculture business would have its global Seeds & Traits and North American commercial headquarters in St. Louis.
"St. Louis to remain the headquarters of the North American seeds business has been the plan from the start," Bernstein analyst Jeremy Redenius said Tuesday in a telephone interview.
The research spending, as well, doesn't appear new, Redenius said. Bayer and Monsanto said in a joint statement after Spicer's remarks that the "combined company expects to spend approximately $16 billion in R&D in agriculture over the next six years with at least half of this investment made in the United States."
That amounts to about $2.7 billion a year, which roughly equates to what the combined companies already spend in that area globally, Redenius said. As for the U.S. breakdown, he estimates it's likely close to half already; Monsanto spends $1.5 billion a year, the majority of which is in the U.S., he said, and Bayer already invests in R&D here as well.
"Not an increase, but not substantially cutting," he said of the global figure.
"This is an investment in innovation and people that will create several thousand new high-tech, well-paying jobs after integration is complete, jobs that will keep America at the forefront of agricultural innovation and that serve U.S. farmers by delivering better products and services faster," Bayer CEO Werner Baumann and Monsanto CEO Hugh Grant said in their joint statement.
The companies said in September they expect the deal to close by the end of 2017, subject to regulatory approvals. Redenius projects closing could stretch into 2018 as another proposed merger in the industry — Dow (NYSE: DOW) and DuPont (NYSE: DD) — is still awaiting European approval.
Bayer and Monsanto said in September they planned about $1.5 billion in "annual synergies" three years after the merger is completed — synergies being code for cost-cuts — and didn't announce any planned changes to that this week.
"The thing the U.S. government is concerned about is jobs," Bernstein analyst Ronny Gal said Tuesday. "They didn't say, 'We're not going to lay off people,' which they will; what they're really saying is: 'We are going to commit to spend a certain amount of money on U.S.-based research.' "
Would they have done that anyway?
"Some of it," Gal said. "For sure."
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