The Largest Acquisition Ever Done: What You Need to Know

In March 2016, Werner Baumann, the CEO of Bayer AG made what is considered the largest acquisition to ever be done in a German Company. He made a Bayer’s all-cash offer for the acquisition of Monsanto at a total price of $62 billion with the aim of creating a global leader in the agrochemical business. In 2015, Monsanto was the leading player in the seed business with a great margin of 36% global market share while Bayer led in several areas of the crop protection market and had an 18% market share. For this reason, the completion of this transaction would see to the emergence of a mega industry player that would dwarf its other competitors. However, is this acquisition plan by Bayer adding up? The goal of this paper is to evaluate the proposal and determine, as the Chief Financial Officer of Monsanto, whether it should be accepted. 

Let us begin by doing a Company valuation using the discounted cash flow (DCF) method. We calculate the free cash flows (FCF) by separating the operating from non-operating assets. 

When calculating the net operating profits less adjusted taxes (NOPLAT), we adjust the income statement for operating costs and operating taxes. Subtracting the adjusted operating expenses from the net sales gives the company’s EBIT. We use the use EBITA for the FCF calculation. Finally, we calculate NOPLAT by subtracting the company’s operating taxes and the change in deferred taxes from the EBITA. 

Let us compute some key ratios 

Asset Utilization 

One of the ratios under asset utilization is the Accounts receivable turnover which compares the size of the company sales and uncollected bills from customers. If any company is difficult to collect money so it has a large account receivable and also indicates the low ratio. Instead of, if any company aggressive collection money so it has low receivable and also a high ratio. This ratio measure the number of times are collected during the period. 25 Account receivable turnover ratio formula is;

The second ratio is the inventory turnover

Short-term solvency 

Long-term solvency 

From these ratios and calculations, it is evident that Monsanto has a good financial standing as of now. However, the proposal by Bayer shows that Monsanto will be able to stand on a firmer ground upon the acquisition. The long-term and short-term solvency are at a good standing, which is quite promising for this company. The accounts receivable turnover is also pretty high at 6.77, which is an indication of Bayer’s resilience to ensuring a consistent cash flow in the company. That said, it is a good idea for Monsanto to accept this proposal by, Bayer and go through with the acquisition. However, this data poses challenges in that they are just projections outlined in the proposal, and there is no surety of the maintenance of the same upon acceptance of the proposal. 

References 

Jahoda, G., Bayer, A., & Needham, W. L. (1978). A Comparison of On-Line Bibliographic Searches in One Academic and One Industrial Organization.  RQ , 42-49. 

MacDonald, J. (2018). Mergers and Competition in Seed and Agricultural Chemical Markets.  Amber News . 

Maisashvili, A., Bryant, H., Raulston, J. M., Knapek, G., Outlaw, J., & Richardson, J. (2016). Seed prices, proposed mergers, and acquisitions among biotech firms.  Choices ,  31 (4). 

Stucke, M. E., & Grunes, A. P. (2016). An Antitrust Review of a Bayer-Monsanto Merger.  The Konkurrenz Group: Washington, DC, USA .