Business Management: Standard Level

Internal Assessment

Research Question: To what extent did Bayer's acquisition of Monsanto

impact its profitability and share prices?

Word Count: 1496

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 Contents Page Numbers

Introduction 3

Qualitative Analysis 4

SWOT Analysis 4

Ansoff Matrix 7

Quantitative Analysis 8

Profitability Ratios 8

Gross Profit Margin 8

Net Profit Margin 9

Conclusion 11

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Research Question: To what extent did Bayer’s acquisition of Monsanto

impact its profitability and share prices?

Introduction:

Bayer, a large German life science company that is famous for producing Aspirin,

announced its intention to acquire Monsanto, an American agrochemical and

agricultural biotechnology company, in May of 2016. Bayer is known for its

pharmaceuticals, consumer health, and crop science. Monsanto, which now

operates under the name Bayer, focuses mostly on agricultural productivity, and

seeds and genomics, and is known for producing genetically modified seeds and the

herbicide glyphosate, “Roundup1.” The agreement was signed in September by both

companies, and they settled on the sale of Monsanto at 128 U.S. dollars per share

with the total amounting to 63 billion U.S. dollars taking into account Monsanto’s

debt, and 66 billion dollars without accounting for the debt 2. After getting all the

required US and EU regulatory approvals, the deal moved forward. Bayer fully

acquired Monsanto on June 7, 2018. This essay will analyze how Bayer’s acquisition

of Monsanto impacted their profitability and share prices, and whether it was

effective or not. I will determine this through the use of different tools such as SWOT

analysis, public perception, and ratios.

Qualitative Analysis:

1
Allgood, Evan. “A Timeline of Monsanto's Roundup Controversy & Lawsuits.” ClassAction.com, 24
Aug. 2018, www.classaction.com/news/timeline-monsanto-roundup-controversy/
2
Supporting Document 5

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SWOT Analysis of the Merger:

Strengths:

- Both companies have a strong base in developing agricultural and

agrochemical products and combining their expertise can lead to the audience

finding their products more reliable3.

- Both companies have projects in overlapping fields and by merging, costs can

be cut, and money can be saved by merging similar projects into one 3.

- Both companies were well established in different parts of the world. By

merging, Bayer is able to enter different markets and extend their

geographical presence into Europe, Asia, and America 3.

- The World Health Organization and the USA Food and Drug Administration

(FDA) have both vouched for the safety of biotech crops, which decreases

concerns in consumers and can increase the number of consumers 3.

- The merger would allow Bayer to save $1.5 billion a year in costs 3.

- Monsanto is considered to be the “most hated company in the world” and

does not have a good ethical reputation 4. Merging with Bayer and getting rid

of the name “Monsanto” can help better their reputation.

- Merging the two companies will increase competition between the employees

of the companies. This can help in increasing productivity, changing the work

ethic and environment, and promote inventions and creativity 5.

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Supporting Document 1
4
Dewey, Caitlin. “Why 'Monsanto' Is No More.” The Washington Post, WP Company, 27 Apr. 2019,
www.washingtonpost.com/news/wonk/wp/2018/06/04/why-monsanto-is-no-more/.

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 - Bayer’s patents on its two top selling drugs would run out in 2023, and the

drop in sales from that could be cushioned by the revenue brought in by

Monsanto and its products5.

Weaknesses:

- Monsanto has many legal liabilities and cases against them due to the

negative effects of the products they sell, and Bayer must assume these legal

responsibilities. This can cause a lot of unnecessary expenses as legal fees

and payouts can be expensive and can also cause damage to the company’s

reputation1.

- By merging the two companies, there is less competition and less companies

in the industry, which can lead to an increase in prices of products such as

agrochemicals and seeds for farmers and consumers 3.

- Bayer’s reputation can be scorched as Monsanto does not have a good

reputation with consumers4 and this can impact Bayer’s reputation and image

established with the public.

- Merging the two companies will increase the number of obstacles employees

must jump through to pitch their ideas, and this can discourage invention and

creativity5.

- Bayer’s shareholders were not convinced about the merger 6 and this can

cause shareholders to lose confidence in the company, sell stock and cause a

drop in share prices.

5
Bender, Ruth. “How Bayer-Monsanto Became One of the Worst Corporate Deals-in 12 Charts.” The
Wall Street Journal, Dow Jones & Company, 28 Aug. 2019, www.wsj.com/articles/how-bayer-
monsanto-became-one-of-the-worst-corporate-dealsin-12-charts-11567001577#refreshed
6
Stam, Claire. “Bayer Nearing Monsanto Deal amid Stakeholders Concerns.” Www.euractiv.com,
EURACTIV.com, 31 May 2018, www.euractiv.com/section/agriculture-food/news/bayer-nearing-
monsanto-deal-amid-stakeholders-concerns/.

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 - Bayer could lose investors as many investors invested in the company’s

pharmaceutical business while Monsanto is focused on the agrochemical and

agricultural industry, and investors could worry that Bayer’s focus would shift,

and investors could lose confidence in the company 7.

Opportunities:

- The combined companies can take advantage of the opportunities such as

increased expertise, expanded consumer base, and overlapping projects and

convert them into strengths which can lead to geographic expansion, increase

in share price, sales, and profits3.

Threats:

- The US FDA has condemned and deemed many of the chemicals used in

Monsanto’s array of product unsafe and harmful to humans, which can lead to

a decrease in profits and sales1.

- Many consumers of Monsanto’s products have been negatively impacted and

have filed lawsuits against the company assuming legal responsibility 1.

- Consumers still have many reservations and concerns when it comes to

genetically modified crops, and this can cause a decrease in sales and

profits3.

- Competition from companies like Dow Chemical Company and Syngenta can

cause competitive pricing, decrease in profits, and poaching of employees 3.

- The market is shifting towards consuming organic products, including food

and agrochemicals and neither company is focusing on that field 3.

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Ansoff Matrix:

The Ansoff Matrix is a tool used by firms to analyze and plan their strategy for

growth7. The table is divided into four parts, each talking about different product and

market mixes along with their benefits and risks. Bayer’s acquisition of Monsanto can

also be studied through the matrix. Monsanto was a top competitor in the GMO

market while Bayer produced herbicides. Herbicides are made to kill weeds, which a

plant can’t be genetically altered to resist, however a plant can be altered to resist

herbicides, causing a substantial increase in herbicide production and use 8. This can

be seen as market development. Market development is when a firm enters a new

market with existing products. This strategy often involves catering to a different

customer segment. Bayer was able to enter the GMO market, a new market that

they did not previously work in, with their existing herbicide products. They targeted

a new customer segment, namely those who grow genetically modified organisms

through this strategy. This would mean Bayer’s customers and revenue on

herbicides would increase.

7
“Ansoff Matrix - Overview, Strategies and Practical Examples.” Corporate Finance Institute, 6 July
2020, corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/.
8
Supporting Document 4

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Quantitative Analysis:

Profitability Ratios:

- Gross Profit Margin:

Gross profit margin is a measure of profitability that indicates how successful an

organization is at generating revenue by showing the percentage of revenue that

exceeds the cost of goods sold9. For every dollar earned, the gross profit margin is

how much of that dollar is gross profit. Gross profit can also be calculated as

revenue – cost of goods sold.

GPM: (Gross Profit / Revenue) x 100

9
Carlson, Rosemary. “What Is Gross Profit Margin?” The Balance Small Business, 23 Dec. 2020,
www.thebalancesmb.com/what-is-the-gross-profit-margin-393201

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Bayer’s gross profit margin steadily increased till 2018 when they acquired

Monsanto. Post the merger, their GPM dropped steadily. This could be attributed to

lower sales and revenue, which could be a direct result of a higher cost of goods,

their patents expiring on popular products, or the negative reputation that Monsanto

held.10 It could also be due to the legal fees and settlements due to the pending

lawsuits against Monsanto that Bayer had legal responsibility due to the merger. 11 A

lower GPM means there would be less money to cover operating or other costs.

- Net Profit Margin:

Net profit margin is the ratio of net profit to revenue and shows how much of each

dollar collected by a company as revenue translates to profit 12. This can be a better

indicator of profitability as compared to gross profit margin as it considers all

expenses such as operating expenses, interest, taxes, and more.

10
Supporting Document 4
11
Supporting Document 2
12
Maverick, J.B. “The Difference Between Gross Profit Margin and Net Profit Margin.” Investopedia,
Investopedia, 19 May 2021, www.investopedia.com/ask/answers/021215/what-difference-between-
gross-profit-margin-and-net-profit-margin.asp

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 NPM: [(Net income) x 100] / Revenue

Bayer’s net profit margin rose from 2017 to 2018, after which it began to decline.

This could be due to higher operating expenses due to the merging of Monsanto and

all their products and projects, which the parent company now had to fund. Since

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Monsanto was still running their projects while not bringing in much revenue due to

the pending lawsuits and toxicity of their products, expenses increased while

revenue and net income did not.13 A low NPM could show that the business is not

making a profit on its products and that it has poor pricing strategies, and this

impacts Bayer as profits are reinvested into the business and could be used for new

experiments or legal settlements.

Conclusion:

Based on the SWOT analysis conducted, the merger threats and the liabilities it

holds strongly outweigh the benefits. Bayer has suffered greatly by having to take on

legal responsibilities for lawsuits, increased expenses, drop in revenue due to certain

products being labelled carcinogenic (Monsanto’s Roundup), expired patents, and

the 63 billion dollars it shelled out for the company.

The gross profit margin and net profit margin also fell post the merger, which is often

expected as the companies find a way to merge and work together. However, the

GPM and NPM did not recover and continued to steadily decline due to possibilities

such as increased expenses, less revenue, ethical concerns, and brand identity

issues. This also means a tighter cash flow.

In conclusion, after doing a qualitative and quantitative analysis, it can be interpreted

that the merger was not effective and caused more harm to Bayer.

Bibliography
13
Supporting Document 2

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Supporting Document 1: Balasubramanian, Anupama. “Bayer-Monsanto Acquisition: Who

Wins? |.” Frontiers, 9 Dec. 2016, frontiersmag.wustl.edu/2016/12/09/bayer-monsanto-

acquisition-who-wins/

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Supporting Document 2: “Bayer Gross Margin 2006-2021: BAYRY.” Macrotrends,

www.macrotrends.net/stocks/charts/BAYRY/bayer/gross-margin

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Supporting Document 3: “Bayer Net Profit Margin 2006-2021: BAYRY.” Macrotrends,

www.macrotrends.net/stocks/charts/BAYRY/bayer/net-profit-margin

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Supporting Document 4: Spross, Jeff. “Why Bayer Really Wants to Buy Monsanto.” The

Week, The Week, 24 May 2016, theweek.com/articles/626013/why-bayer-really-wants-buy-

monsanto

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Supporting Document 5: Communications, Bayer AG. Bayer Plans Closing of Monsanto

Acquisition on June 7, 4 June 2018, media.bayer.com/baynews/baynews.nsf/id/Bayer-plans-

closing-of-Monsanto-acquisition-on-June-7

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 Others

Article 1: Allgood, Evan. “A Timeline of Monsanto's Roundup Controversy & Lawsuits.”

ClassAction.com, 24 Aug. 2018, www.classaction.com/news/timeline-monsanto-roundup-

controversy/

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Article 2: “Ansoff Matrix - Overview, Strategies and Practical Examples.” Corporate Finance

Institute, 6 July 2020, corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-

matrix/

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Article 3: Bender, Ruth. “How Bayer-Monsanto Became One of the Worst Corporate Deals-in

12 Charts.” The Wall Street Journal, Dow Jones & Company, 28 Aug. 2019,

www.wsj.com/articles/how-bayer-monsanto-became-one-of-the-worst-corporate-dealsin-12-

charts-11567001577#refreshed

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Article 4: Carlson, Rosemary. “What Is Gross Profit Margin?” The Balance Small Business,

23 Dec. 2020, www.thebalancesmb.com/what-is-the-gross-profit-margin-393201

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Article 5: Dewey, Caitlin. “Why 'Monsanto' Is No More.” The Washington Post, WP

Company, 27 Apr. 2019, www.washingtonpost.com/news/wonk/wp/2018/06/04/why-

monsanto-is-no-more/

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Article 6: Maverick, J.B. “The Difference Between Gross Profit Margin and Net Profit Margin.”

Investopedia, Investopedia, 19 May 2021,

www.investopedia.com/ask/answers/021215/what-difference-between-gross-profit-margin-

and-net-profit-margin.asp

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Article 7: Stam, Claire. “Bayer Nearing Monsanto Deal amid Stakeholders Concerns.”

Www.euractiv.com, EURACTIV.com, 31 May 2018, www.euractiv.com/section/agriculture-

food/news/bayer-nearing-monsanto-deal-amid-stakeholders-concerns/

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Article 8: “The Effects of Mergers and Acquisition on Employees.” Business Class: Trends

and Insights | American Express, 11 Dec. 2019,

www.americanexpress.com/en-ca/business/trends-and-insights/articles/the-effects-of-

mergers-and-acquisition-on-employees/

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 Links

Allgood, Evan. “A Timeline of Monsanto's Roundup Controversy & Lawsuits.”

ClassAction.com, 24 Aug. 2018, www.classaction.com/news/timeline-monsanto-roundup-

controversy/

“Ansoff Matrix - Overview, Strategies and Practical Examples.” Corporate Finance

Institute, 6 July 2020, corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-

matrix/ 

Balasubramanian, Anupama. “Bayer-Monsanto Acquisition: Who Wins? |.” Frontiers,

9 Dec. 2016, frontiersmag.wustl.edu/2016/12/09/bayer-monsanto-acquisition-who-wins/

“Bayer Gross Margin 2006-2021: BAYRY.” Macrotrends,

www.macrotrends.net/stocks/charts/BAYRY/bayer/gross-margin

“Bayer Net Profit Margin 2006-2021: BAYRY.” Macrotrends,

www.macrotrends.net/stocks/charts/BAYRY/bayer/net-profit-margin

Bender, Ruth. “How Bayer-Monsanto Became One of the Worst Corporate Deals-in

12 Charts.” The Wall Street Journal, Dow Jones & Company, 28 Aug. 2019,

www.wsj.com/articles/how-bayer-monsanto-became-one-of-the-worst-corporate-dealsin-12-

charts-11567001577#refreshed

60
 Carlson, Rosemary. “What Is Gross Profit Margin?” The Balance Small Business, 23

Dec. 2020, www.thebalancesmb.com/what-is-the-gross-profit-margin-393201

Communications, Bayer AG. Bayer Plans Closing of Monsanto Acquisition on June 7,

4 June 2018, media.bayer.com/baynews/baynews.nsf/id/Bayer-plans-closing-of-Monsanto-

acquisition-on-June-7

Dewey, Caitlin. “Why 'Monsanto' Is No More.” The Washington Post, WP Company,

27 Apr. 2019, www.washingtonpost.com/news/wonk/wp/2018/06/04/why-monsanto-is-no-

more/

Maverick, J.B. “The Difference Between Gross Profit Margin and Net Profit Margin.”

Investopedia, Investopedia, 19 May 2021,

www.investopedia.com/ask/answers/021215/what-difference-between-gross-profit-margin-

and-net-profit-margin.asp

Spross, Jeff. “Why Bayer Really Wants to Buy Monsanto.” The Week, The Week, 24

May 2016, theweek.com/articles/626013/why-bayer-really-wants-buy-monsanto 

Stam, Claire. “Bayer Nearing Monsanto Deal amid Stakeholders Concerns.”

Www.euractiv.com, EURACTIV.com, 31 May 2018, www.euractiv.com/section/agriculture-

food/news/bayer-nearing-monsanto-deal-amid-stakeholders-concerns/

“The Effects of Mergers and Acquisition on Employees.” Business Class: Trends and

Insights | American Express, 11 Dec. 2019,

61
www.americanexpress.com/en-ca/business/trends-and-insights/articles/the-effects-of-

mergers-and-acquisition-on-employees/

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