Which are the best growth strategies for a company whose aims are to achieve economies of scale, expand its operation and find new profits’ sources? An acquisition could be a good answer!
This is what Bayer is trying to do with Monsanto!
But, what do these companies do? Let’s go deeper.
Bayer is a German multinational, known all over the world. The company’s primary areas of business include human and veterinary pharmaceuticals, consumer healthcare products, agricultural chemicals and biotechnology products. Its skills, which regards the “life Sciences” area, are mainly used to face in the best way future’s challenges, highlighted in its motto “science for a better life”.
Bayer has always been able to reach its aims thanks to technological innovation, and it has always tried to grow; in fact it acquired Schering in 2006 and announced its acquisition of Monsanto in 2016.
Monsanto, on the other side, is an American agricultural company which is always developing tools to deal with a changing climate, making sure that the agricultural system continues to suit everyone’s needs.
So, we have a pharmaceutical and agricultural chemical giant, and on the other hand a multinational, famous for its seeds and genetically modified crops.
The German company has made a takeover bid (OPA) for the American one.
To understand why it is so willing to make an economic effort like this, it’s important to analyze two issues:
- The renewal of the license of the herbecide glyphosate, produced by Monsanto; this, could give birth to the biggest producer of seeds and agrochemicals in the world, that would be considered “poisonous” by environmentalists.
- The negotiations on the Transatlantic Trade and Investment Partnership (TTIP): it is an agreement between the European Union and the United States, whose aim is to promote trade and multilateral economic growth; its main three broad areas are market access, specific regulation and principles of co-operation.
Overall, Ttip could make the democratic decision making processes weaker, for the benefit of multinationals.
As we can see, this theme is related to low, in particular to the antitrust one, regulating commerce.
Let’s see what it concerns:
- Its first aim is to avoid the repression of free trade, often caused by cartels
- Also important is to ban abusive behavior by a firm dominating market or anti competitive practices that tend to led to such a dominant
- At least, the most considerable point, related to Bayer’s intentions, is supervising the mergers and acquisitions of large corporations, that could threat the competitive process.
The risk inside Bayer’s acquisition is to create a power concentration; this way these companies would merge their power and control over the markets, not well seen by antitrust authorities, whose role is to rule and protect the markets in our society.
Overall, there’s no doubt that an acquisition has many advantages, such as the Economies of scale that can be formed by sharing the resources and services, costs reduction and tax benefits, but we also have to consider the negative aspects and some difficulties encountered with an acquisition.
Some examples can be the major complexity thanks to frictions and internal competition that could occur among the staff of the united companies, or higher costs as the result of the right management’s removal.
However, the biggest doubt in the situation of this proposed acquisition concerns the possibility of having, in markets, a reduced competition in a range of different markets, resulting in higher prices, lower quality, less choice and less innovation, as it was said in a statement.
This is why, now, Bayer- Monsanto agreement has been interrupted: the Commission’s aim is to make a final decision on the deal by January 8th 2018.
It’s not easy to carry out an assessment: experts will see if this acquisition would violate anti-trust laws, whose aim is to protect the consumers’ interests!