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Bayer in Expansion Mode

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In a bid to strengthen its presence in the fruits and vegetables market, the CropScience unit of  Bayer (BAYRY - Free Report) recently inked a deal to acquire US based AgraQuest, a global supplier of innovative biological pest management solutions, for $425 million (approximately €340 million).

Through this impending acquisition, whose materialization is subject to approval by relevant authorities, Bayer aims to not only boost its fruits and vegetables business, which currently is responsible for 25% of sales at the CropScience division, but also build a strong technology platform based on "green" products.

We note that a wide range of pests and diseases are controlled by green products, thereby providing farmers with integrated programs for pest management to maximize crop yields and minimize resistance development.

Management at the CropScience division stated that the impending acquisition of AgraQuest is in line, with its target of recording €3 billion in segmental sales by 2020.

We note that the CropScience unit of Bayer has been quite active on the acquisition/deal signing front. Last month, the unit inked a deal to buy the watermelon and melon seed business of US based privately-held seed company, Abbott & Cobb Inc. 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 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). The HealthCare unit of Bayer has co-developed Xarelto with the Janssen Research and Development unit of Johnson & Johnson (JNJ - Free Report) .

Our Recommendation

We currently have a Neutral recommendation on Bayer in the long-run. The company carries a Zacks #4 Rank (Sell rating) in the short-run.

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