The CropScience unit of Bayer ( BAYRY - Analyst Report ) recently announced that it has inked a deal to buy the watermelon and melon seed business of the US based privately-held seed company, Abbott & Cobb Inc. The financial terms of the deal, expected to close shortly, were not revealed. The transaction, following its closure, should strengthen the vegetable seed business at Bayer.

We note that Abbott & Cobb is a key player in the market for watermelons in the US. Moreover, the company operates in Mexico, Australia and Asia. Through this acquisition, Bayer aims to strengthen its presence in the promising Asian market.

The move is consistent with Bayer’s focus on emerging markets. Sales in these markets improved by 9% on an adjusted basis to €13,290 million in 2011. Emerging markets accounted for 36.4% of total revenues in 2011. The comparable figure in 2010 was 35.6%. Sales from emerging markets were encouraging in the first quarter of 2012 as well, improving 6%.

With factors like pricing pressure and intensifying generic competition affecting sales in large pharmaceutical markets, companies are looking towards emerging markets to drive growth.

The CropScience segment is one of the world's leading crop-science companies in the area of crop protection, non-agricultural pest control, seeds, and plant biotechnology. It develops and markets chemical crop protection products (insecticides, herbicides, and fungicides), seeds, and integrated plant biotechnology solutions for agricultural and non-agricultural uses.

Even though impressed by the expansion efforts of Bayer, we expect investor focus to remain on the performance of blood-thinner Xarelto for the lucrative stroke prevention in nonvalvular atrial fibrillation (SPAF) indication (approved late last year). Bayer’s efforts to expand the label of Xarelto into additional indications are encouraging. The HealthCare unit of Bayer has co-developed Xarelto with the Janssen Research and Development unit of Johnson & Johnson ( JNJ - Analyst Report ) .

Our Recommendation

We currently have a Neutral recommendation on Bayer in the long-run. The company carries a Zacks #3 Rank (Hold rating) in the short-run.