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Final Project Background informaTon
Background InformaTon (applies to Milestones One through ±hree):
Bayer is a life science ²rm with a more than 150-year history and core competencies in the areas of
healthcare and agriculture. With its innovaTve products, it contributes to ²nding soluTons major
challenges, such as a growing and aging world populaTon requiring improved medical care and an
adequate supply of food. Bayer addresses these issues by prevenTng, alleviaTng and treaTng diseases,
and helping to provide a reliable supply of high-quality food, feed and plant-based raw materials. Bayer
PharmaceuTcal is Bayers largest division in terms of total sales. ±his division focuses on researching,
developing and markeTng innovaTve medicines with a posiTve cost-bene²t raTo primarily in the
therapeuTc areas of cardiology, oncology, gynecology, hematology and ophthalmology. ±o safeguard
long-term growth, Bayer is currently seeking increase its investment in research and development.
Besides expanding early research, Bayer is concentraTng on the clinical development of acTve drug
substance candidates in the therapeuTc areas of cardiology, oncology, hematology and gynecology. In
addiTon, it is selecTvely expanding and supplemenTng its development por³olio through licensing
agreements and acquisiTons. ±he Crop Science Division of Bayer, on the other hand, focuses on
improvement in agricultural sustainability, crop yields and quality, as well as the leveraging of digiTzaTon
to help make products safer (Bayer, 2016). Bayers aim is to help shape the future of the agricultural
industry with innovaTve o´erings that increase its producTvity, thus generaTng pro²table and
sustainable growth for Crop Science and its customers and enabling the producTon of suµcient food,
animal feed and renewable raw materials for a growing world populaTon despite the limited amount of
available arable land. ±his strategy is complementary to its Animal Science Division, which produces
animal feed products. Bayer Crop Science Divisions current strategy is to enhance its Crop ProtecTon
and Environmental Science por³olio, expand its Seeds business, and to lead the way in innovaTon and
develop holisTc soluTon (Bayer AG, 2016). For purposes of this discussion, assume that Bayer aims to
build on its experTse in the integraTon of seed technology with chemical and biological crop protecTon.
For purposes of this project, assume that Bayer is seeking to acquire Monsanto CorporaTon. Monsanto,
along with its subsidiaries, is a leading global provider of agricultural products for farmers. ±hrough its
seeds, biotechnology-trait products, herbicides and precision agriculture tools, Monsanto (Monsanto,
2016) seeks to provide farmers with soluTons that help improve producTvity, reduce the costs of farming
and produce be¶er foods for consumers and be¶er feed for animals. Monsanto has a worldwide
distribuTon, sales and markeTng organizaTon for its agricultural-producTvity products. In a growing
number of locaTons throughout the world, it produces directly or contracts with third-party growers for
corn seed, soybean, vegetable, co¶on, canola and other seeds. ±he global market for its Seeds and
Genomics segment is increasingly compeTTve. Both its row crops and its vegetable seed businesses
compete with numerous mulTnaTonal agrichemical and seed marketers globally, and with hundreds of
smaller companies regionally.
Bayers proposal would pair Monsanto, the world’s largest seed company, with drug-maker Bayer’s
growing seed and crop protecTon por³olio. Upon announcement of the possibility of such a bid, shares
of St. Louis-based Monsanto (MON) rose by 8.7% (Kirch²eld, et. al., 2016). Across 2015, immediately
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following announcement of a possible merger between the two Frms, Bayer’s growing agribusiness
division saw sales rise 9% to $11.8 billion, while its healthcare sales rose 19% to $26 billion, as market
parTcipants reacted to news of the possible merger. Overall, Bayer’s 2015 sales rose 12%, to $52.8 billion
(Business Wire, 2014). On the other hand, Monsanto, which makes seeds (corn, co±on, fruits and other
vegetables) and crop protecTon chemicals such as RoundUp, reported sales of $15 billion in its 2015
Fscal year. ²his was a 5% decline from the previous year (Daily Management Review, 2016). See ²able 1,
below, for an alternaTve view of these results.
Prompt:
In this project, you will assume that Bayer is considering a bid for United States seed company Monsanto
(Snider, 2016). ³or purposes of this project, assume that you are Chief ³inancial O´cer of Monsanto
CorporaTon. Bayers proposal would pair Monsanto, the world’s largest seed company, with drug maker
Bayer’s growing seed and crop protecTon porµolio. Upon announcement of the possibility of such a bid,
shares of St. Louis-based Monsanto (MON) rose by 8.7% (KirchFeld, et. al., 2016). Across 2015,
immediately following announcement of a possible merger between the two Frms, Bayer’s growing
agribusiness division saw sales rise 9% to $11.8 billion, while its healthcare sales rose 19% to $26 billion.
Overall, Bayer’s 2015 sales rose 12%, to $52.8 billion (Business Wire, 2014). On the other hand,
Monsanto, which makes seeds (corn, co±on, fruits and other vegetables) and crop protecTon chemicals
such as RoundUp, reported sales of $15 billion in its 2015 Fscal year. ²his was a 5% decline from the
previous year (Daily Management Review, 2016). Assume that Monsanto is taxed (²C) at a rate of 35%
and its cost of debt (RD) is 12%. See ²able 1, below, for an alternaTve view of this data. In the context of
Bayers proposal, assume that Bayers Beta is 1.24. ³or purposes of valuaTon of cash ¶ows in the context
of Bayers proposal, consider Monsantos discounted cash ¶ow for only the upcoming 1 year of sales, and
assume that Monsanto is expected to grow at a rate of 3% in the current year. Assume also that
Monsantos current sales are projected to be $15,239,000, while its equity holdings are esTmated to be
$9,141,333 and its debt is $12,359,333. Assume that Monsantos ProFt Margins and ²otal Asset ²urnover
are unchanged from 2015 levels. EBI², depreciaTon, capital spending, and the change in net working
capital will grow at the same rate as sales, which is expected to grow at a rate of 3% across this year,
while capital investment will remain stable
As an alternaTve proposal means of increasing shareholder value, as Chief ³inancial O´cer of Monsanto,
you have also been asked to evaluate a management proposal to expand Monsantos exisTng operaTons
to pesTcide producTon, yielding an increase in sales of $3,950,000. In the context of this alternaTve
proposal, assume that there is no excess capacity, and the increase in Fxed asset needs would be equal
to 70% of this increase in sales, while cost of sales would run 20% of sales, using a percentage of sales
approach. Also assume that Monsanto issues dividends at a rate of 1.98% of net sales, and thus the
Frms retenTon raTo is 98.2%. Assume that Monsantos current total level of sales is $15,239,000, while
the division involved in this project is expected to yield sales of $2,950,000 in the current year. .Assume
that the proposed project has a risk and weighted average cost of capital similar to that of Monsanto,
and a Frm beta similar to that of Monsanto.
Upon receipt of Bayers proposal, your companys Board of Directors has directed you, as Chief ³inancial
O´cer of Monsanto CorporaTon, to review key staTsTcs and other informaTon and report to the Board
on the following:
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BUS 505: Final Project Document
Overview & Paper Writing Service – Topic Examples – Rubric
Your fnal project ±or this course is to prepare a fnancial analysis. This fnal project takes a close look at
two corpora²ons, Bayer and Monsanto. Bayer is considering a bid ±or United States seed company
Monsanto (Snider, 2016). For purposes o± this project, you will act as the Chie± Financial O³cer o±
Monsanto Corpora²on, analyzing fnancial documents and determining whether Monsanto should
indeed go ±orward with acceptance o± the purchase.
The project is divided into three milestones, which will be submi´ed at various points throughout the
course to scaµold learning and ensure quality fnal submissions. Preliminary milestones will be submi´ed
in Modules Four and Six. The fnal submission will occur in Module Eight.
Milestone 1:
Evalua²on o± the Proposal
Due in Module 4
Milestone 2:
Evalua²on o± an Alterna²ve Opportunity
Due in Module 6
Milestone 3:
Final Project Submission
Due in Module 8
In this assignment you will demonstrate your mastery o± the ±ollowing course outcomes:
[CO1]
Analyze fnancial reports to determine a frms per±ormance.
[CO2]
Apply the strategic planning processes necessary to manage the long- and short-term
fnancial ac²vi²es o± the frm.
[CO3]
Per±orm valua²on o± fnancial instruments.
[CO4]
Evaluate the appropriateness o± an investment using applicable economic, industry,
and compe²²ve analysis.
Milestone 1: Evalua²on o± the Proposal
Be±ore comple²ng this assignment, review the Final Project Document. Background in±orma²on ±ound in
the Final Project Document applies to Milestones One through Three. In the fnal project, you will
assume the role o± Chie± Financial O³cer o± Monsanto Corpora²on. Bayer is considering a bid ±or United
States seed company Monsanto. Assume that relevant tax rate is 35%. EBIT, deprecia²on, capital
spending, and the change in net working capital will grow at the same rate as sales, which is expected to
grow at a rate o± 3% across the current year, while capital investment will remain stable. Assume that
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operatonal resulTs quoTed ouTside of ±ables 4, 5 and 6 (income sTaTemenT, balance sheeT, and sTaTemenT
of cash Fows, below), are inTerim measures To be used for purposes of your calculatons.
Based on The proposals likely e²ecT on shareholder value, deTermine wheTher To accepT or rejecT This
proposal for $62B, using evidence provided here in ±ables 1 Through 6, To supporT your analyses.
EvaluaTe each of The following:
WheTher To accepT or rejecT This proposal, using evidence drawn from rato analysis, and tme and Trend
analysis and oTher evidence from assigned readings covered in Modules One Through ±hree To supporT
your deTerminatons. CompuTe and include Two ratos per each of The four main areas of rato analysis,
including shorT-Term solvency, asseT utlizaton, long-Term solvency, and pro³TabiliTy.
B. EvaluaTe limiTatons ThaT may exisT in using These varietes of analysis To make This deTerminaton.
ImmediaTe ResulTs from The Bayer AnnouncemenT in 2015
MonsanTo (MON) Share Price
Increased 8.7%
Bayer Crop Science Division
Sales increased 9% To $11.8 billion
Bayer HealThcare Division Sales
Increased 19% To $26 billion
Bayer Pharmaceutcal Sales
Increased 12%, To $52.8 billion
MonsanTo Sales
Decreased 5% To $15 billion
±able 1 ImmediaTe ResulTs from The Bayer AnnouncemenT in 2015
ValuPro NeT Online Valuaton of MONSAN±O CORPORA±ION – 2015
ReTurn on AsseTs
8.56
ReTurn on EquiTy
14.93
Sales ($mil)
14,757 InvesTmenT RaTe (% of Rev)
4.78
GrowTh RaTe (%)
13.5
Working CapiTal (% of Rev)
29.19
NeT Oper. Pro³T Margin (%)
21.3
ShorT-±erm AsseTs ($mil)
11141
±ax RaTe (%)
30.584 ShorT-±erm Liab. ($mil)
4055
STock Price ($)
86.74
EquiTy Risk Premium (%)
3
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M6A5 Milestone 2
Milestone 2: EvaluaTon of an AlternaTve Opportunity
Before compleTng this assignment, review the Final Project Document. Background informaTon found in
the Final Project Document applies to Milestones 1 through 3.
As an alternaTve proposal means of increasing shareholder value, you have also been asked to evaluate
Monsantos intent to expand its operaTons to pesTcide producTon, which is expected to yield a sales
increase of $3,950,000. ±here is no excess capacity, and the increase in ²xed asset needs would be equal
to 70% of this increase in sales, while cost of sales would run 20% of sales, using a percentage of sales
approach. Assume that Monsanto issues dividends at a rate of 1.98% of net sales, and thus the ²rms
retenTon raTo is 98.2%. Current sales are projected to be $15,239,000. Assume that the proposed
project has a risk and weighted average cost of capital similar to that of Monsanto, and a ²rm beta
similar to that of Monsanto.
a. ±he extent to which Monsanto will have to take on addiTonal debt, given that it wishes to retain its
current dividend raTo and does not wish to sell addiTonal equiTes.
b. Calculate the ²rms sustainable growth rate and internal growth rate and use these measures to
analyze a decision to accept this alternaTve proposal. Use these measures and concepts covered in
assigned readings including EFN, DuPont IdenTty and leverage, Modules One through Six, to explain the
importance of these measures to shareholder interests.
At the end of your dra³, include quesTons and challenges that you experienced with this milestone.
Prepare your EvaluaTon of an AlternaTve Opportunity in a 2-4 page double-spaced document using 12
pt. ±imes New Roman font. Use APA forma´ng.
Immediate Results from the Bayer Announcement in 2015
Monsanto (MON) Share Price
Increased 8.7%
Bayer Crop Science Division
Sales increased 9% to $11.8 billion
Bayer Healthcare Division Sales
Increased 19% to $26 billion
Bayer PharmaceuTcal Sales
Increased 12%, to $52.8 billion
Monsanto Sales
Decreased 5% to $15 billion
±able 1 Immediate Results from the Bayer Announcement in 2015
ValuPro Net Online ValuaTon of MONSAN±O CORPORA±ION – 2015
Return on Assets
8.56
Return on Equity
14.93
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Sales ($mil)
14,757 Investment Rate (% of Rev)
4.78
Growth Rate (%)
13.5
Working Capital (% of Rev)
29.19
Net Oper. ProFt Margin (%)
21.3
Short-Term Assets ($mil)
11141
Tax Rate (%)
30.584 Short-Term Liab. ($mil)
4055
Stock Price ($)
86.74
Equity Risk Premium (%)
3
Shares Outstanding (mil)
533.8
Company Beta
1.05
10-Yr Treasury Yield (%)
500%
Value Debt Out. ($mil)
2.054
Bond Spread Treasury (%)
1.5
Value Pref. Stock Out. ($mil)
0
Preferred Stock Yield (%)
7.5
Company WACC (%)
8%
Table 2 ValuePro Net Online Valua±on
Monsanto Co. 2015 (Bloomberg Market Rates)
MON:US
Current Price
106.00 (USD)
Open
106.80
Day Range
109.69-109.54
Volume
18,049,774
Previous Close
106
52 Week Range
81.22-120
1 Year Return
-7.06%
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