Bayer Beware: Germany Has History of Bungled Overseas Deals

(Bloomberg) -- After months of talks, Bayer AG finally pulled off the biggest foreign acquisition in the history of corporate Germany with the $66 billion takeover of Monsanto Co. Now, the hard work begins to make the combination a success.

Bayer-Monsanto follows agrichemical deals between Dow Chemical Co. and DuPont, as well as ChemChina-Syngenta AG. Completion of the merger would leave three companies with more than 75 percent of the global market, according to data compiled by Bloomberg -- a level of concentration sure to set off alarm bells with regulators. The combination also faces a public backlash in Germany over concerns about Monsanto’s genetically modified seeds and weedkiller -- both abhorred in Bayer’s home country.

In a sign of how protracted the regulatory review of the new seed and crop-chemical giant will be, the companies said they will seek approval in 30 jurisdictions around the world -- including the U.S., European Union, Canada and Brazil -- and don’t expect to complete the deal until the end of 2017. Monsanto shares closed 20 percent below the offer price on Wednesday over concerns from investors that the deal might not succeed.

German companies have a checkered history with mega acquisitions abroad, including Daimler AG’s ill-fated purchase of Chrysler in 1998 for $43 billion -- a stand-out symbol for failed ventures overseas. Another reminder of the difficulties such deals face came just this week when Linde AG’s talks to merge with U.S. rival Praxair Ltd. fell apart over squabbling about the role of the German company’s Munich home base following a combination.

Still, mid-tier companies in the country have been forging ahead with foreign acquisitions that garner less attention. ZF Friedrichshafen AG has done so well with the $12.9 billion purchase of U.S. parts supplier TRW Automotive Holdings Corp. last year that it’s already on the hunt for new targets. ZF is currently bidding to buy Sweden’s Haldex AB.

And Bayer has proven itself as one of the most aggressive acquirers among German companies. In addition to the gutsy Monsanto bid, it won fierce bidding wars to buy rival Schering AG, creating the country’s largest drugmaker in 2006, and Merck & Co.’s consumer unit in 2014.

Here are five other deals that Bayer and Monsanto might want to study as they move forward.

Deutsche Telekom AG-VoiceStream Wireless Corp. (2000 - $50.5 billion):

This deal at the dawn of the new millennium gave the German telephone company a splashy entry into the U.S. wireless market. But it also came with headaches, as mobile phone improvements were taking off and competition between carriers was fierce. Deutsche Telekom has only recently begun to turn around what became T-Mobile USA Inc. after a sale to Sprint Corp. was blocked by regulators.

Daimler AG-Chrysler Corp. (1998 - $43 billion):

Considered one of the most disastrous deals in corporate history, there was a huge culture clash between the German manufacturer of the luxury Mercedes Benz brand and the U.S. maker of mass market cars like the Chrysler Sebring that led to this merger’s downfall. After nine years spent trying to make things work, the automakers’ marriage broke down: Daimler sold Chrysler to Cerberus Capital Management in 2007 for just $7.4 billion.

HeidelbergCement AG-Hanson Ltd. (2007 - $18 billion):

This deal was the largest in the building materials industry that year, according to data compiled by Bloomberg. One looming problem that might not have been on HeidelbergCement’s radar when it bought its U.K. competitor: the housing market was about to crash under the weight of subprime mortgages, leading to a slump in construction projects and stripping the company of its investment-grade credit rating.

HeidelbergCement didn’t return to major deal-making until 2015, when it agreed to buy Italcementi SpA for 3.7 billion euros ($4.2 billion.)

Merck KGaA-Sigma-AldrichCorp. ($16 billion):

A happier story: Family-controlled Merck continued a tradition of acquisitions with the purchase of the U.S. firm to expand in chemicals used in research labs and pharmaceutical manufacturing, as well as reducing its dependence on drug development.

The German company last month reported second-quarter profit that beat analysts’ estimates, buoyed by the acquisition of the pharmaceutical equipment maker. Before that it successfully acquired and integrated Millipore Corp., a supplier of drug development equipment for biotechnology companies in 2010, and AZ Electronic Materials SA in 2013 to strengthen its specialty chemicals to the electronics industry.

Linde AG-BOC (2006 - $15.6 billion):

Linde’s takeover of its larger British rival in manufacturing industrial gases is used as the case study for successful acquisitions in MBA programs. The unsolicited bid in 2006 vaulted the German company to the world’s biggest maker of industrial gasses from No. 5, in what CEO Wolfgang Reitzle called "a perfect match" at the time.

Reitzle, now Linde’s chairman, has faced a very different scenario this week following the collapse of the Praxair talks, which had gotten underway in earnest in August. Following the announcement Monday that the potential deal had fallen apart, Chief Financial Officer Georg Denoke was ousted and Chief Executive Officer Wolfgang Buechele said he wouldn’t seek to extend his contract beyond April.

Linde could revisit a merger with Praxair down the road because the strategic rationale remains intact, people familiar with the matter have said.

--With assistance from Jack Kaskey and David McLaughlin To contact the reporter on this story: Aaron Kirchfeld in London at akirchfeld@bloomberg.net. To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net, Chad Thomas, Angela Cullen