BASF sows seeds with $7bn Bayer deal

by Richard Summerfield

German chemicals giant Bayer is to sell parts of its crop science business to BASF for about $7bn, the companies have announced. The deal has been designed to assuage the concerns of the EU competition authority over Bayer’s planned $66bn acquisition of US agrochemical and agricultural biotechnology corporation Monsanto Company.

The deal will see BASF pay in cash for “significant parts” of Bayer’s seed and herbicide businesses. BASF is paying 15 times earnings before interest, taxes, depreciation and amortisation. BASF said the deal will be earnings per share accretive in the first year.

For BASF, the deal is a surprising one. To date, the company has avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licences to seed developers. However, Bayer’s Monsanto acquisition has opened up opportunities for rival firms. Bayer has confirmed that proceeds from the seed unit sale will help finance the Monsanto acquisition.

“With this acquisition, we are seizing the opportunity to purchase highly attractive assets in key row crops and markets. We look forward to growing these innovative and profitable businesses and to welcoming the experienced and dedicated team in crop protection, seeds and traits. These businesses are an excellent match for BASF Group’s portfolio,” said Dr Kurt Bock, chairman of the board of executive directors of BASF SE, in a statement.

“I am very pleased that, in BASF, Bayer has selected an acquirer that, like our company, attaches a great deal of importance to social partnership and values its employees. I welcome the fact that BASF has committed to offering comparable employment conditions for our colleagues,” said Oliver Zühlke, chairman of the Bayer Central Works Council.

In August, the European Commission opened an investigation to assess the proposed acquisition of Monsanto by Bayer under the EU Merger Regulation. Bayer had offered to sell assets worth around $2.5 bn. The European Commission said in August that the divestments offered by Bayer so far did not go far enough and opened an in-depth review of the deal.

News: BASF to buy Bayer units for $7bn

Global economy on an upward trajectory, but caveats remain

BY Richard Summerfield

The pace of growth of the global economy has surpassed earlier estimations with a marked improvement under way across nearly all the world’s major economies, according to the International Monetary Fund’s World Economic Outlook report.

In 2015, the global economy grew a disappointing 3.2 percent, but the world is on track for 3.6 percent growth this year and 3.7 percent next year, according to the IMF. It upgraded its growth forecast by 0.1 percent for this year and next from the last full Economic Outlook in April and the update to its forecasts in July.

However, there are some black clouds on the horizon. The UK’s growth forecast has been cut by 0.3 points to 1.7 percent since April as a result of the consumer-led slowdown in activity in the first half of the year, caused by the pound’s depreciation.

The IMF has also scaled back the expected growth predicted for the US economy due to uncertainty surrounding president Trump’s ability to institute his proposed tax cuts. As a result, though the IMF still expects the US economy to grow this year, the speed of that growth will be reduced. The IMF forecasts that the economy will see 2.2 percent growth in 2017 and 2.3 percent in 2018; in April it projected 2.3 percent growth this year and 2.5 percent in 2018.

“The downward revision relative to April forecasts reflects a major correction in U.S. fiscal policy assumptions,” the IMF wrote in its latest World Economic Outlook report. Because of “significant policy uncertainty,” the IMF felt it could not count on Congress and the president passing lower taxes.

Regardless of uncertainty in the US and other regions, the global economy is still performing above expectations. The pace of its recovery from the global financial crisis of the 2000s is faster than anticipated.

"The picture is very different from early last year, when the world economy faced faltering growth and financial market turbulence. We see an accelerating cyclical upswing boosting Europe, China, Japan, and the United States, as well as emerging Asia," Maurice Obstfeld, an economic counsellor and director of research at the IMF, wrote in a blog post accompanying the report. "The current global acceleration is also notable because it is broad-based – more so than at any time since the start of this decade."

All 15 countries the IMF tracks individually are expected to grow in 2017 and 2018, with China and India set to lead the pack. China is expected to regain the fastest-growing nation crown with 6.8 percent expansion this year, slightly ahead of India's 6.7 percent. However, India is forecast to take the lead in 2018.

Report: World Economic Outlook, October 2017

Leading companies lack transparency over risks of modern slavery in supply chains, reveals new report

BY Fraser Tennant

Transparency among major companies relating to the risks of modern slavery in their global supply chains is severely lacking, according to a new report by corporate watchdog the CORE Coalition.  

The report – ‘Risk Averse: Company Reporting on raw material and sector-specific risks under the Transparency in Supply Chains clause in the UK Modern Slavery Act 2015’ – examines the statements of 50 companies, as under the terms of the UK Modern Slavery Act, all firms with an annual turnover above £36m are required to publish a slavery & human trafficking statement.

Of the 50 companies under the microscope, 25 source raw materials known to be linked to labour exploitation – cocoa from West Africa, mined gold, mica from India, palm oil from Indonesia and tea from Assam. The other 25 operate in sectors known to be at-risk of modern slavery, such as clothing and footwear, hotels, construction, football and service outsourcing.

The report’s key findings include: (i) top cosmetics companies make no mention in their statements of child labour in mica supply chains, even though a  quarter of the world’s mica (a mineral used to create a shimmer in make-up) comes from mines in Northeast India where around 20,000 children are estimated to work; (ii) chocolate companies do not provide information in their statements on their cocoa supply chains, despite acknowledging that they source from West Africa, where child labour and forced labour are endemic in cocoa production; and (iii) jewellery firms do not include any detail on the risks of slavery and trafficking associated with gold mining, although estimates by the International Labour Organisation (ILO) suggest that close to one million children work in gold mines worldwide. 

“With an estimated 24.9 million people in slavery globally, the level of complacency from major companies, particularly those that trumpet their corporate social responsibility, is startling,” said Marilyn Croser, director of CORE. “Genuine transparency about the problems is needed, not just more public relations.”

While the report focuses in the main on companies that do not report specific risks of slavery and trafficking within their supply chains, some examples of good practice are noted.

Ms Croser continues: “These firms are acknowledging the drivers of modern slavery and situating their response within a broader strategy to respect human rights. We expect other businesses to step up to the mark in the second year of reporting under the UK Modern Slavery Act.”

Report: ‘Risk Adverse: Company Reporting on raw material and sector-specific risks under the Transparency in Supply Chains clause in the UK Modern Slavery Act 2015’

European M&A dealmakers in positive mood, claims new survey

BY Fraser Tennant

Dealmaking sentiment for the year ahead across the European M&A market is positive despite the ongoing impact of last year’s Brexit vote, according to a new report by CMS in association with Mergermarket.

The report, ‘Changing tides: European M&A Outlook 2017’, which canvassed the opinions of 230 Europe-based executives from corporates and private equity firms, found that 67 percent expect European M&A activity levels to increase over the next 12 months while 5 percent anticipate a slowdown.

In comparison, last year’s survey, which was conducted shortly after the Brexit vote, was met with a subdued response from dealmakers as to upcoming European M&A, with 66 percent expecting activity to decrease over the forthcoming year and 24 percent anticipating an increase.

That said, M&A in Europe has been showing signs of stabilisation this year, with Mergermarket data revealing that M&A deals in H1 2017 sharply increased in value compared to the same period in 2016, rising 33 percent to €443bn.

“The mood among deal makers is markedly different in 2017,” confirms Stefan Brunnschweiler, head of the corporate/M&A practice group at CMS. “While acknowledging some of the challenges they face, respondents are largely optimistic about deal making prospects for the coming year, with many suggesting they are ready to take advantage of opportunities stemming from dislocations that result from Brexit and from a return to economic growth in the eurozone.”

In addition, survey respondents indicated that European financing conditions are currently favourable and that this will drive large, transformational deals over the next 12 months. Indeed, 88 percent expect similar or more favourable financing conditions over the coming year. Furthermore, 66 percent of survey respondents expect to engage in M&A, including acquisitions, divestments or both.

The report also notes that overseas buyers have been setting their sights on the European market, with four of the top 10 European deals in H1 2017 led by bidders located outside the EU – a trend that 90 percent of executives believe will continue.

“European M&A in the first half of 2017 shows positive signs of recovery, with momentum gathering as we move through the year," said Kathleen Van Aerden, head of research EMEA at Mergermarket. “The €246bn total value recorded in Q2 2017 was up 25 percent on the previous quarter and was higher than any quarter in 2016.”

A market newly refreshed with confidence, dealmakers are currently adapting to a new normal in European M&A activity.

Report: Changing tides: European M&A Outlook 2017

Global Logistics expands with $2.8bn European acquisition

BY Richard Summerfield

Global Logistics Properties, which manages around $39bn of logistics assets in Asia-Pacific and the Americas, has expanded into the European logistics market by acquiring Gazeley for around $2.8bn from Brookfield Asset Management. The transaction is expected to be funded by about $1.6bn of equity and $1.2bn of long-term, low-cost debt.

Global Logistics itself is in the process of being taken over for $11.8bn by a leading Chinese private equity consortium which includes Hillhouse Capital and the Hopu Investment Management Company, and is backed by senior executives from Global Logistics. The consortium, which is known as Nesta, will take Global Logistics private in Asia's largest private equity buyout of the year. According to Global Logistics, the deal for Gazeley is not expected to impact the timeline for the company’s privatisation.

In a statement announcing the Gazeley deal, Ming Z. Mei, co-founder and chief executive of GLP, said: “We have been looking to expand to Europe and this portfolio presents an attractive entry point given the quality and location of the assets. This transaction adds a premier operational and development platform for us in Europe and is part of our long-term strategy to expand our fund management business.”

Gazeley’s existing management team, as well as the company’s brand, are both expected to be retained when the deal has been completed.

Global Logistics will be acquiring a considerable asset portfolio in the deal. The company will gain around 32 million square feet of property currently owned by Gazeley, which is concentrated in Europe’s key logistics markets, with 57 percent in the United Kingdom, 25 percent in Germany, 14 percent in France and the remainder in the Netherlands, according to Global Logistics. Europe has long been a focus for Global Logistics; indeed, the company has been talking about expanding into the market for more than 18 months.

The company, much like the wider logistics industry, has seen a rising demand for facilities, driven by a boom in e-commerce. Earlier this year, private equity group Blackstone agreed to sell European warehouse firm Logicor to China Investment Corp for $14.4bn in a deal which further reinforces the burgeoning interest in the global logistics sector.

News: Global Logistic Properties buys European logistics firm for $2.8 billion