What does BASF’s acquisition of Liberty and InVigor business mean for Canada?

It’s the spinoff that many people in the North American ag market have been waiting for.

In Bayer’s conquest of Monsanto, the concentration of trait and variety market share in crops like cotton and canola was deemed to be unfair for a competitive balance. Given Bayer’s strong presence in the Canadian canola seed market, the speculation of who would buy the assets carried many coffee shop conversations and even had experts stumped. BASF and Syngenta were believed to have the highest odds, but companies like Agrium’s Crop Production Services, Limagrain/Winfield and Nufarm were also mentioned as potential suitors for some or all of the available assets. (43 percent of respondents in our poll back in May chose BASF.)

Pending regulatory approval and Bayer completing its deal with Monsanto, the Liberty and seed assets will move under BASF.

So what does this mean for growers and retailers in Canada?

We had the chance to pose some questions to Ron Kehler, BASF’s business director for Canada. Here are his answers and our thoughts on what it could mean for your farm and the industry.

What strategy will BASF take with trait licensing? Will they entertain licensing the Liberty trait to other canola companies?

Ron Kehler, BASF’s business director for Canada: “It’s a bit early in the process to define our future go-to-market approach. Once we have successfully closed the transaction, we will have a detailed integration plan in place. These integration details will be defined and announced at a later stage.”

Our thoughts: Bayer always took a very closed strategy to licensing the herbicide trait to competing seed companies, while Monsanto took an out-licensing approach with its Roundup traits. Commercialization strategies for crops like canola are increasingly trait driven, which creates many questions for the marketplace in terms of how BASF and the new Bayer/Monsanto will react.

With the growth of RR soybeans and the potential for increased glyphosate resistance, the probability is increasing for Liberty tolerant canola acres to continue to rise. This demand will have many seed companies knocking on BASF’s door to license the Liberty tolerance trait as well as the very successful pod shatter reduction trait.

BASF does have experience out-licensing its Clearfield trait but that strategy made sense since they never owned seed genetics to put the trait in.

Will the Invigor and Liberty teams be integrated into BASF’s existing structure or run as a separate business unit?

BASF: “We’re still in early stages, so it’s too early to provide any specifics regarding structure. For the time being, what we can tell you is the businesses and employees, whether in development, manufacturing or in commercialization, they will be part of BASF’s Crop Protection division. Details will be worked out after closing and announced at a later time.”

Our thoughts: We have no real insight on what BASF will do in terms of management and the field teams.

BASF said they will secure all full-time Bayer employee jobs for three years. Do they see layoffs on the BASF side where overlap exists?

BASF: “This is a completely complementary business, so the intention is to grow the acquired businesses… We look forward to really welcoming highly-experienced, dedicated and motivated professionals to BASF. We’re building on similar cultural values and we share a common innovation mindset. These new colleagues will enrich our team… It’s too early to provide specifics. Following the successful closing of the transaction, a more detailed integration plan will be developed.”

The deal includes about 700 Bayer employees in North America, including around 300 people in Canada, as well as facilities in Regina, Lethbridge and Saskatoon, and 10 research and development sites in Canada with regional seed production and breeding facilities.

Our thoughts: In terms of running a high-powered successful canola production, packaging and sales business, the Bayer operation was often referred to as a “machine.” BASF has the advantage of getting the entire operation, including infrastructure and people. A purchaser buying only the technology would not have access to the brains behind the highest canola variety and trait market share in Canada.

Will there be any BASF divestitures to fund the purchase? Will BASF flip any of these assets?

BASF: No.

Our thoughts: We have chatted with several sources and no one has even speculated that this would be required, although it doesn’t rule divestiture if they discover non-core assets in the purchase. We would not expect any of the Canadian assets to fit that criteria.

Additional thoughts from RealAg editorial team:

With this purchase, BASF will hold a significant share of the pulse and canola business. Take for example, a straight cut canola acre. BASF distributes Heat, which is commonly used for dry-down before harvest. With the Bayer purchase they will also have ownership of the leading pod shatter reduction trait in the market.

BASF is acquiring Bayer’s North American soybean business, so we could potentially see them expand access to Credenze soybean genetics.

BASF and Bayer have been the leaders in attempting to educate growers on weed resistance. Although Bayer/Monsanto still hold the Bayer herbicide assets, BASF now has a herbicide trait (Liberty) that is much more saleable to the farmer than Clearfield has been. With Liberty herbicide, Kehler also said they see opportunity to combine selective and non-selective chemistries to develop new herbicide formulations for improved resistance management. Expect BASF to up their commitment to herbicide resistance education with this portfolio addition.

Traditionally, BASF has spent around 9 percent of ag product sales on research and development, and Kehler indicated that would continue with the new assets.

At C$8.7 billion, BASF paid a healthy multiple for the Bayer assets. This is BASF’s entry into the seed business in a big way. There will be immense pressure to hold the market share of InVigor above 50% and even increase it over 60-65%. The pressure will be strong internally and externally.

Related: Bayer signs C$8.7 billion deal to sell LibertyLink and seed businesses to BASF