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Sullivan & Cromwell and Bayer’s High-Profile Corporate Acquistions

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Allen Dulles [6]

Allen Dulles

COMMENT: In its acquisitions of both Monsanto and Merck Pharmaceutical Co.’s over-the-counter drug business, Bayer has received its legal counseling from Sullivan & Cromwell, the old Dulles law firm.

In the Monsanto deal: ” . . . . Bayer’s legal advisers are Sullivan & Cromwell LLP and Allen & Overy LLP. . . . “

In the Merck deal: ” . . . . Sullivan & Cromwell LLP represented Bayer AG in its agreement to buy Merck & Co.’s consumer unit for $14.2 billion. . . .”

John Foster Dulles of Sullivan & Cromwell had much to do with the cobbling together of the I.G. Farben cartel, of which Bayer was a key element. As discussed in FTR #912 [7] (among other programs), Bayer has retained its links with the Underground Reich [8] and the Bormann capital network [9].

In FTR #16 [10], we highlighted speculation that the AIDS virus may have been spread in the U.S. (in part, at least) by an experimental hepatitis-B vaccine manufactured by Merck. We wonder if information from that possible information may now be in possession of pertinent information relevant to that vaccine?

Might this impact on future genetically-modified products manufactured by Bayer/Monsanto, as speculated about in FTR #912 [7]? Will we see the CCr5Delta 32 gene (the “Aryan” gene) introduced into a future Bayer/Merck product?

Stay tuned!

“Bayer Clinches Monsanto with Improved $66 Billion Bid” by Ludwig Burger and Greg Roumeliotis; Reuters; 9/15/2016. [11]

German drug and crop chemical maker Bayer clinched a $66 billion takeover of U.S. seeds company Monsanto on Wednesday, ending months of wrangling with a third sweetened offer that marks the largest all-cash deal on record.

The $128-a-share deal, up from Bayer’s previous offer of $127.50 a share, has emerged as the signature deal in a consolidation race that has roiled the agribusiness sector in recent years, due to shifting weather patterns, intense competition in grain exports and a souring global farm economy.

“Bayer’s competitors are merging, so not doing this deal would mean having a competitive disadvantage,” said fund manager Markus Manns of Union Investment, one of Bayer’s top 12 investors.

Grain prices are hovering near their lowest levels in years amid a global supply glut, and farm incomes have plunged.

But the proposed merger will likely face an intense and lengthy regulatory process in the United States, Canada, Brazil, the European Union and elsewhere. Hugh Grant, Monsanto’s chief executive, said Wednesday the companies will need to file in about 30 jurisdictions for the merger.

Competition authorities are likely to scrutinize the tie-up closely, and some of Bayer’s own shareholders have been highly critical of a takeover that they say risks overpaying and neglecting the company’s pharmaceutical business.

If the deal closes, it will create a company commanding more than a quarter of the combined world market for seeds and pesticides in the fast-consolidating farm supplies industry.

What the newly-formed company would be named is unclear.

Grant said on Wednesday’s media conference call that the future of the Monsanto brand has not yet been discussed, but the world’s largest seed company is “flexible” about the name going forward.

The transaction includes a $2-billion break-up fee that Bayer will pay to Monsanto should it fail to get regulatory clearance. Bayer expects the deal to close by the end of 2017.

The details confirm what a source close to the matter told Reuters earlier.

Baader Helevea Equity Research analyst Jacob Thrane, with a “sell” rating on Bayer, said the German company was paying 16.1 times Monsanto’s forecast core earnings for 2017, more than the 15.5 times ChemChina agreed to pay for Swiss crop chemicals firm Syngenta last year. He also said there was uncertainty over what the combined company would look like as regulators might demand asset sales.

Bernstein Research analysts said on Tuesday they saw only a 50 percent chance of the deal winning regulatory clearance, although they cited a survey among investors that put the likelihood at 70 percent on average.

“We believe political push-back to this deal, ranging from farmer dissatisfaction with all their suppliers consolidating in the face of low farm net incomes to dissatisfaction with Monsanto leaving the United States, could provide significant delays and complications,” they wrote in a research note.

Bayer said it was offering a 44-percent premium to Monsanto’s share price on May 9, the day before it made its first written proposal.

It plans to raise $19 billion to help fund the deal by issuing convertible bonds and new shares to its existing shareholders, and said banks had also committed to providing $57 billion of bridge financing.

Bayer shares rose 0.3 percent to 93.55 euros. Monsanto’s were up 0.6 percent at $106.76.

ONE-STOP SHOP

Bayer’s move to combine its crop chemicals business, the world’s second-largest after Syngenta AG, with Monsanto’s industry-leading seeds business, is the latest in a series of major agrochemicals tie-ups.

The German company is aiming to create a one-stop shop for seeds, crop chemicals and computer-aided services to farmers.

That was also the idea behind Monsanto’s swoop on Syngenta last year, which the Swiss company fended off, only to agree later to a takeover by China’s state-owned ChemChina.

U.S. chemicals giants Dow Chemical and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.

And on Monday, Canadian fertilizer producers Potash Corp of Saskatchewan Inc and Agrium Inc agreed to combine to navigate a severe industry slump, but the new company’s potential pricing power may attract tough regulatory scrutiny.

The Bayer-Monsanto deal will be the largest ever involving a German buyer, beating Daimler’s tie-up with Chrysler in 1998, which valued the U.S. carmaker at more than $40 billion. It will also be the largest all-cash transaction on record, ahead of brewer InBev’s $60.4 billion offer for Anheuser-Busch in 2008.

Bayer said it expected the deal to boost its core earnings per share in the first full year following completion, and by a double-digit percentage in the third year.

Bayer and Monsanto were in talks to sound out ways to combine their businesses as early as March, which culminated in Bayer’s initial $122 per-share takeover proposal in May.

Antitrust experts have said regulators will likely demand the sale of some soybeans, cotton and canola seed assets.

Bayer said BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan had committed to providing the bridge financing.

BofA Merrill Lynch and Credit Suisse are acting as lead financial advisers to Bayer, with Rothschild as an additional adviser. ” . . . .Bayer’s legal advisers are Sullivan & Cromwell LLP and Allen & Overy LLP. . . . “

Morgan Stanley and Ducera Partners are acting as financial advisers to Monsanto, with Wachtell, Lipton, Rosen & Katz its legal adviser.

“S & C, Morgan-Lewis on Bayer-Merck Deal: Business Law” by Elizabeth Amon; Bloomberg News; 5/7/2014.  [12]

Sullivan & Cromwell LLP represented Bayer AG in its agreement to buy Merck & Co.’s consumer unit for $14.2 billion. Fried Frank Harris Shriver & Jacobson LLP and Morgan Lewis & Bockius LLP acted as legal counsel to Merck.

The Sullivan & Cromwell team was led by New York-based mergers and acquisitions partner Matthew G. Hurd. . . .

The Brothers: John Foster Dulls, Allen Dulles, and Their Secret World War by Stephen Kinzer; St. Martin Griffin [SC]; Copyright 2013 by Stephen Kinzer; ISBN 978-1-250-05312-1; pp. 49-52. [13]

. . . . Foster had helped design the Dawes Plan of 1924, which restructured Germany’s reparation payments in ways that opened up huge new markets for American banks, and later that year he arranged for five of them to lend $100 million to German borrowers. In the seven years that followed, he and his partners brokered another $900 million in loans to Germany–the equivalent of more than $15 billion in early-twenty-first century dollars. This made him the preeminent salesman of German bonds in the United States, probably the world. He sharply rejected critics who argued that American banks should invest more inside the United States and protested when the State Department sought to restrict loans to Germany that were unrelated to reparation payments or that supported cartels or monopolies.

Foster made much money building and advising cartels, which are based on agreements among competing firms to control supplies, fix prices, and close their supply and distribution networks to outsiders. Reformers in many countries railed against these cartels, but Foster defended them as guarantors of stability that ensured profits while protecting economies from unpredictable swings. Two that he shaped became global forces.

Among Foster’s premier clients was the New Jersey-based International Nickel Company, for which he was not only counsel but also a director and member of the executive board. In the early 1930s, he steered it, along with its Canadian affiliate, into a cartel with France’s two major nickel producers. In 1934, he brought the biggest German nickel producer, I.G. Farben, into the cartel. This gave Nazi Germany access to the cartel’s resources.

“Without Dulles,” according to a study of Sullivan & Cromwell, “Germany would have lacked any negotiating strength with [International Nickel], which controlled the world’s supply of nickel, a crucial ingredient in stainless steel and armor plate.”

I.G. Farben was also one of the world’s largest chemical companies–it would produce the Zyklon B gas used at Nazi death camps–and as Foster was bringing it into the nickel cartel, he also helped it establish a global chemical cartel. He was a board member and legal counsel for another chemical producer, the Solvay conglomerate, based in Belgium. During the 1930s, he guided Solvay, I. G. Farben, the American firm Allied Chemical & Dye, and several other companies into a chemical cartel just as potent as the one he had organized for nickel producers.

In mid-1931, a consortium of American banks, eager to safeguard their investments in Germany, persuaded the German government to accept a loan of nearly $500 million to prevent default. Foster was their agent. His ties to the German government tightened after Hitler took power at the beginning of 1933 and appointed Foster’s old friend Hjalmar Schacht as minister of economics.

Allen [Dulles] had introduced the two men a decade earlier, when he was a diplomat in Berlin and Foster passed through regularly on Sullivan & Cromwell business. They were immediately drawn to each other, Schacht spoke fluent English and understood the United States well. Like Dulles, he projected an air of brisk authority. He was tall, gaunt, and always erect, with close-cropped hair and high, tight collars. Both men had considered entering the clergy before turning their powerful minds toward more remunerative pursuits. Each admired the culture that had produced the other. Both believed that a resurgent Germany would stand against Bolshevism. Mobilizing American capital to finance its rise was their common interest.

Working with Schacht, Foster helped the National Socialist state find rich sources of financing in the United States for its public agencies, banks, and industries. The two men shaped complex restructurings of German loan obligations at several “debt conferences” in Berlin–conferences that were officially among bankers, but were in fact closely guided by the German and American governments–and came up with new formulas that made it easier for the Germans to borrow money from American banks. Sullivan & Cromwell floated the first American bonds issued by the giant German steelmaker and arms manufacturer Krupp A.G., extended I.G. Farben’s global reach, and fought successfully to block Canada’s effort to restrict the export of steel to German arms makers. According to one history, the firm “represented several provincial governments, some large industrial combines, a number of big American companies with interests in the Reich, and some rich individuals.” By another account it “thrived on its cartels and collusion with the new Nazi regime.” The columnist Drew Pearson gleefully listed the German clients of Sullivan & Cromwell who had contributed money to the Nazis, and described Foster as chief agent for “the banking circles that rescued Adolf Hitler from the financial depths and set up his Nazi party as a going concern.”

Although the relationship between Foster and Schacht began well and thrived for years, it ended badly. Schacht contributed decisively to German rearmament and publicly urged Jews to “realize that their influence in Germany has disappeared for all time.” Although he later broke with Hitler and left the government, he would be tried at Nuremberg for “crimes against peace.” He was acquitted, but the chief American prosecutor, Robert Jackson, called him “the facade of starched responsibility, who in the early days provided the window dressing, the bait for the hesitant.” He baited no one more successfully than Foster.

During the mid-1930s, through a series of currency maneuvers, discounted buybacks, and other forms of financial warfare, Germany effectively defaulted on its debts to American investors. Foster represented the investors in unsuccessful appeals to Germany, many of them addressed to his old friend Schacht. Clients who had followed Sullivan & Cromwell’s advice to buy German bonds lost fortunes. That advice, according to one study, “cost Americans a billion dollars because Schacht seduced Dulles into supporting Germany for far too long.’ . . . .

. . . . Foster had clear financial reasons to collaborate with the Nazi regime, and his ideological reason–Hitler was fiercely anti-Bolshevik–was equally compelling. In later years, scholars would ask about his actions in the world. Did he do it out of a desire to protect economic privilege, or out of anti-Communist fervor? The best answer may be that to him there was no difference. In his mind defending multinational business and fighting Bolshevism were the same thing.

Since 1933, all letters written from the German offices of Sullivan & Cromwell had ended, as required by German regulations, with the salutation Heil Hitler! That did not disturb Foster. He churned out magazine and newspaper articles asserting that the “dynamic” countries of the world–Germany, Italy, and Japan–“feel within themselves potentialities which are suppressed,” and that Hitler’s semi-secret rearmament project simply showed that “Germany, by unilateral action, has now taken back her freedom of action.” . . . .