In the largest deal of 2016 (so far) agriculture giants Bayer and Monsanto announced Wednesday that they are planning to merge.
Bayer will acquire Monsanto for $66 billion, at $128 per share, a significant increase from Bayer’s original $122 per share offer earlier this year.
In the announcement of the deal, the companies used one word that should make every Bayer and Monsanto employee nervous: synergies.
“Significant value creation with expected annual synergies of approximately USD 1.5 billion after year three; plus additional synergies from integrated solutions in future years,” said the press release announcing the deal.
Synergies, in corporate-speak, indicate areas where investment bankers or the firms in the deal have identified redundancies or opportunities to make the combined company leaner, thus saving on costs.
In common-speak, this usually means some layoffs are coming.
While synergies can also mean cutting redundancies in things like software and machinery, typically a large chunk of the savings that come from reduced employee headcounts.
For instance, if both firms have processing plants in one city, those can be combined into one. This leaves less need for employees. Or if Bayer and Monsanto have similar human resource departments, the combined company’s new management can try and streamline the number of employees to handle the workload.
Now as we’ve pointed out, a lot of times these synergies aren’t what they’re cracked up to be and don’t help earnings after mergers. There is a good chance that many of these cost cutting measures never come to fruition. Additionally, the deal is a large one and a large number of mega-deals such as this have been rejected by the Department of Justice this year.
For Bayer and Monsanto employees, however, that may be of little solace.
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