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

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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 (among oth­er pro­grams), Bay­er has retained its links with the Under­ground Reich and the Bor­mann cap­i­tal net­work.

In FTR #16, 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? 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.

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.


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. 

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.

. . . . 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.” . . . .



One comment for “Sullivan & Cromwell and Bayer’s High-Profile Corporate Acquistions”

  1. Peter Thiel worked at Sul­li­van and Cromwell for 7 months after he grad­u­at­ed from Stan­ford Law School. See 9/16/16 Huff­in­g­ton Post Arti­cle by Ben Walsh and Ryan Grim


    Posted by Anonymous | October 11, 2016, 8:06 pm

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