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Perrella on Bayer Agreeing to Buy Monsanto (Audio) · Bloomberg Intelligence

• 0:01
  Speaker 1: This is taking stock with Gadleys and grim Box on
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  Speaker 1: Bloomberg Radio. Is it really over? Is buyer really going
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  Speaker 1: to pay sixty six billion dollars for Monsanto? Let's find
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  Speaker 1: out more from Christopher Perella. He is US chemicals analyst
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  Speaker 1: for Bloomberg Intelligence. Christopher, thank you very much for being
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  Speaker 1: with us. Before we get to the details of the deal,
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  Speaker 1: tell me exactly your perspective from the chemical business point
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  Speaker 1: of view. Why would the deal get done at a
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  Speaker 1: time when crop prices are dropping? Doesn't that mean that
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  Speaker 1: farmers have less money to spend on the very products
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  Speaker 1: that buyer is looking to acquire. Oh, that's a good point, Pim,
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  Speaker 1: and I think the key here is to U to
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  Speaker 1: give farmers and all in bundle of seeds and crop chemicals. Uh,
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  Speaker 1: serve up an agronomic solution of farmers that you can
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  Speaker 1: package and sell out and drive sales growth that way,
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  Speaker 1: while the mark waits for crop prices to improve and
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  Speaker 1: thus the outlook for all these companies to improve. So uh,
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  Speaker 1: it's uh, well, just let's start with some of the
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  Speaker 1: nuts and bolts. The deal A good deal, I guess
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  Speaker 1: it's a good deal in the basics sense. It's going
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  Speaker 1: to get done. And there's been quite a bit of
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  Speaker 1: back and forth. Right, it does here that it's going
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  Speaker 1: to get done. Um. Some of the risks so behind
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  Speaker 1: the deal a lot of debt that has to go out.
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  Speaker 1: Buyer has to do some heavy lifting to finance this
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  Speaker 1: thirty nine billion in debt nineteen billion and mandatory convertible
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  Speaker 1: bonds and rights issues. Um. And if they can maintain
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  Speaker 1: investment grade rating, which is going to be a key
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  Speaker 1: to the deal, I think that helps them. Maybe uh
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  Speaker 1: with the ECB and their corporate bond purchase program that
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  Speaker 1: might that might also come into play as part of
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  Speaker 1: this deal as well. Well. Perhaps what they could do
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  Speaker 1: is they could actually sell the bonds directly to the
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  Speaker 1: European Central Bank. Right, quite quite possible with the disclaimer
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  Speaker 1: that I am not a credit anim us in Europe,
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  Speaker 1: but that that that does seem like a reasonable suggestion.
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  Speaker 1: All right, So now go into a little bit of
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  Speaker 1: detail in terms of the businesses that will be combined
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  Speaker 1: and what the future company might look like. Right. So
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  Speaker 1: from the egg perspective, which is the focus of this deal,
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  Speaker 1: you have Munsano, the leader in biotech seeds um and
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  Speaker 1: buyers number three in the crop chemical world, So you're
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  Speaker 1: combining seeds and sprays. But what it really does is
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  Speaker 1: that farmers care about it. In turn, regulators care about
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  Speaker 1: is it gives it. It's it's yield in the field
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  Speaker 1: for farmers. UM Whether you develop a biotech seed that
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  Speaker 1: helps the plant grow better or that fights off disease
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  Speaker 1: or pesticides, or if you develop a chemical that does
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  Speaker 1: something similar doesn't matter to the farmer. It's it's all
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  Speaker 1: about driving yields for the farmer, and regulators probably will
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  Speaker 1: look at it from from a similar perspective In terms
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  Speaker 1: of um. Seeds and crop chemicals really do compete against
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  Speaker 1: each other. It's just a different avenues to to get
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  Speaker 1: that yield. Uh, and higher yields higher income for the
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  Speaker 1: farmers out in the field. Now that being said, those
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  Speaker 1: two businesses put together, combined with buyers existing farm of business,
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  Speaker 1: it's it's basically the company is going to be half
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  Speaker 1: pharmaceuticals and half a can biotech seeds, which raises a
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  Speaker 1: number of questions about the long term viability of of
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  Speaker 1: of a model like that. So, uh, the big picture
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  Speaker 1: that some are framing is that this is something that
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  Speaker 1: is going to reshape the farming industry a whole new
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  Speaker 1: way of doing things. Uh, do you buy onto this
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  Speaker 1: or is that? Is it really going to be that
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  Speaker 1: much of a kind of landmark deal to make a
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  Speaker 1: new kind of approach here. Um, it's not a new
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  Speaker 1: kind of approach. It's the the ongoing evolution. So I
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  Speaker 1: wouldn't say that it's a a leap forward so much
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  Speaker 1: as it it's the way that the market seems to
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  Speaker 1: be heading. With Syngenta pioneering the model a few years
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  Speaker 1: back they started combining the seeds marketing, the seeds and
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  Speaker 1: the chemicals, UM Down and do Pont getting together to
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  Speaker 1: create all three companies out of two but one of
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  Speaker 1: which will be an exact lookalike with seeds and crop
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  Speaker 1: protection chemicals put together. It's it's an evolution in terms
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  Speaker 1: of R and D where the the they're developing seeds
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  Speaker 1: now that respond or that are tolerant of of certain chemicals.
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  Speaker 1: So you're you're locking in a farmer not only to
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  Speaker 1: the seed, but then that seed is locking in hopefully
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  Speaker 1: your own chemical that the farmer is going to have
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  Speaker 1: to use on that. That raises another regulatory issue down
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  Speaker 1: the road as well. But all these all these are
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  Speaker 1: driving yield in the field for the farmer, and then
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  Speaker 1: sort of the evolution of the business is where where
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  Speaker 1: it's headed. Is there a possibility that regulators will come
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  Speaker 1: back and say, even though there's not a lot of
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  Speaker 1: overlap in the business of Buyer and UH and Monsanta,
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  Speaker 1: that the combined company is going to account for thirty
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  Speaker 1: percent of global crop inputs business, and that they just
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  Speaker 1: will not allow that. Inasmuch as we've seen these other
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  Speaker 1: as you describe previous giant chemical deals right right, and
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  Speaker 1: and people should note that Monsanto Buyer is number four
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  Speaker 1: in the line of chemical deals, behind Keim China's and
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  Speaker 1: gentadpot and Pottish Corporate Agrium in the fertilizer space as well. UM.
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  Speaker 1: Some areas that that would probably engender regulatory scrutiny right
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  Speaker 1: off the bat would be US cotton seed, where buyer
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  Speaker 1: actually bought its cotton seed business from Montsanto about a
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  Speaker 1: decade ago. UH Canola, some swaving oils and and there's
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  Speaker 1: some some crop chemical overlap as well. And then that
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  Speaker 1: also raises the regulatory um outlook of looking at these
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  Speaker 1: deals in total, all four deals going off at the
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  Speaker 1: same time, how does that reshape the market, and you
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  Speaker 1: do raise a very very good point about the entire
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  Speaker 1: global crop input market being UH controlled by one player
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  Speaker 1: there at that point. So there's a lot of a
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  Speaker 1: lot of question marks, UH from a regulatory perspective. With
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  Speaker 1: the steel where do you see the most growth for
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  Speaker 1: this company? UH? Monsanto of course has UH I'd say
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  Speaker 1: for people who are concerned about things like gene and
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  Speaker 1: genetically modified organisms and crops, Europeans seem to be have
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  Speaker 1: kind of led the way on on that one. Is
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  Speaker 1: it less of an issue in Asia? In Africa? The
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  Speaker 1: concern about round up it's herbicide UH glyphosphate, right, the
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  Speaker 1: trade name is round up continues to spark not only
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  Speaker 1: opposition from opponents of GMO, but more and more health
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  Speaker 1: and environment environment experts globally are jumping on the bandmag
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  Speaker 1: and at some point does that catch up with this company.
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  Speaker 1: There's a great, great point, a very important issue there.
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  Speaker 1: The um, the growth um. Depending on the country and
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  Speaker 1: depending on the politics of the country, the growth of
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  Speaker 1: biotech seeds is either embraced or of the complete opposite
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  Speaker 1: of that um, depending on the region and how how
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  Speaker 1: much they need UH. The the input, the yield there
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  Speaker 1: from from the seeds. Um So, it's it's going to
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  Speaker 1: be continue to be a good growth story or the
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  Speaker 1: driving growth story is really the adoption of biotech seeds
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  Speaker 1: and the upgrading of those said seeds. UH. The roundup
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  Speaker 1: product is the most applied herbicide in the in the world,
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  Speaker 1: and it is UH Monsano seeds are basically any genetically
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  Speaker 1: modified seed and I'm generalizing a little bit, UH is
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  Speaker 1: tolerant of that herbicide. It's a it's a key UH
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  Speaker 1: input in the global agg business. And it's that it's
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  Speaker 1: been that way for almost twenty years now at this point.
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  Speaker 1: Um So, there there is pushback and it depends on
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  Speaker 1: the region, but it's it's going to be a continued
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  Speaker 1: growth driver for this new company going forward. Have we
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  Speaker 1: seen this type of consolidation before in the chemicals industry? Uh?
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  Speaker 1: This is UH this is sort of a unique time
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  Speaker 1: in the chemicals industry in the last year or so,
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  Speaker 1: UM not that I can remember. It's been a while
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  Speaker 1: UH for for this level of consolidation. But as as
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  Speaker 1: growth slows and people are looking for better ways to
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  Speaker 1: put their balance sheets to work, cheap debt and slow growth,
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  Speaker 1: I think it's a resulting in this wave of mergers here?
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  Speaker 1: And what are you hearing from analysts beside yourself? You're
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  Speaker 1: certainly an analyst Bloomberg Intelligence, But what what? What is
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  Speaker 1: this sort of the consensus or is there a consensus
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  Speaker 1: on the street? Um? I think the the street consensus
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  Speaker 1: could could be characterized as a coin flip between people
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  Speaker 1: that like the deal and don't like the deal, So
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  Speaker 1: that I guess the consensus is there's an even lack
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  Speaker 1: of consensus on the street as as to the the
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  Speaker 1: merits of the deal and who's getting the better of it.
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  Speaker 1: A lack of consensus for a sixties six billion dollar
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  Speaker 1: deal for mont Santo and UH and buyer. Is there
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  Speaker 1: anybody left? I mean, every now and again I hear
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  Speaker 1: be a SF might have been interested in a bid
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  Speaker 1: for Monsanto? Is there anybody left left to buy? Um?
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  Speaker 1: Not really, you would have to go much smaller in
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  Speaker 1: scale among the crop chemical companies, UH and the fertilizer
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  Speaker 1: companies to where these deals are taking place. B A
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  Speaker 1: s F has gone it alone. They actually have a
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  Speaker 1: an R and D relationship with Montsanto, which I guess
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  Speaker 1: they'll now have with their their fellow countrymen down the road.
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  Speaker 1: There UM once those deals consummated. But there's there's only
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  Speaker 1: really three or four large players of a global scale
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  Speaker 1: in the market, with a sort of a mere mid
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  Speaker 1: tier UH to follow. But there's not much left, all right,
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  Speaker 1: Christopher Prela, you certainly covered that story up one side
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  Speaker 1: and down the other. Buyer agreeing to buy Monsanto in
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  Speaker 1: a sixty six billion dollar deal will be the largest
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  Speaker 1: take over the year if it goes through. I'm Cafe Mason,
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  Speaker 1: pim Fox, and this is Bloomberg.