23 August 2016 by pdonnat
Bayer is moving ahead with Monsanto merger to create a one shop, from crop chemicals to seeds. This move is in many aspects controversial. Selling the same seed to the whole planet is against the best rule of any risk management: diversification and in this case more precisely bio-diversification. French winegrowers were happy to use the American grape resistant to the phylloxera at the end of the 19th century when all French vineyards were devastated. The basis of consolidation - one product for all - is adding risks with a reduction of farmer’s suppliers. But, this merger is not about risk reduction. Buying Monsanto all cash, Bayer has already secured a 60BEUR credit facility. This is against the rules of “Through the Cycle” resilience. Bayer was used to be a AA rated company and it is now close to be downgraded to BBB. The CDS has moved wider today closing at 58bps (+5bps). Bayer CDS was trading at 25bps in March 2015. However, with the ECB eager to buy corporate bonds the move wider could not last long.