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Bayer-Monsanto: The Values Implications of Mergers

Values-Aligned Investing
June 5, 2018

As we have worked with clients on their ESG portfolios over the years, we’ve discovered that there are a few specific companies that many of our clients want excluded by name from their portfolios. (I sometimes refer to these as "companies that people love to hate.") The names of these companies may not surprise you: ExxonMobil, Walmart, and Monsanto. We have other clients who think these companies are fine and have their own lists of objectionable companies. You certainly may have your own nominees for such a list.

But what should you do when there is a corporate action involving one of the companies you currently exclude from your portfolio?

In 2016, Bayer AG (BAYN) announced it would acquire Monsanto (MON) in an all-cash transaction. The merger requires a significant number of regulatory reviews and approvals, which have been ongoing since the announcement. In April of this year, the US Department of Justice approved the merger following reports indicating that Bayer has agreed to sell some assets to reduce antitrust concerns. The European Union has also blessed the merger, so it is getting closer to reality.

What does this mean for you if you specifically excluded Monsanto from your portfolio? At Aperio, if your portfolio includes issue-based rules related to GMOs (genetically modified organisms), Bayer was already excluded from your portfolio, and while the transaction is interesting news, it doesn’t affect you. If, however, you excluded Monsanto by name, whether because of its involvement in GMOs or based on beliefs about “shady” business practices, Bayer could be in your portfolio and could be problematic.

Here are some questions you might want to consider:

  • Was my motivation for excluding Monsanto based on its GMO involvement, and should I implement that exclusion more consistently by establishing an issue-based criteria related to GMOs?
  • Was my motivation based on other factors about how Monsanto conducted its business, and can I determine whether those practices will carry forward into Bayer as the basis for excluding (possibly selling or gifting) Bayer from my portfolio?

This merger, assuming it is completed, offers an opportunity to consider some of the structural approaches to implementing your values in your portfolio based on a very concrete example. As with any implementation of values criteria, there is no one right answer for all clients, just the answer that is most appropriate for you.

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This article is provided for informational purposes only. The information contained within this article was carefully compiled from sources Aperio believes to be reliable, and it is accurate to the best of our knowledge and belief. However, Aperio cannot guarantee its accuracy, completeness, and validity, and cannot be held liable for any errors or omissions. All information contained herein should be independently verified and confirmed. Aperio does not accept any liability for any loss or damage whatsoever caused in reliance upon such information. Aperio provides this information with the understanding that it is not engaged in rendering legal, accounting, or tax services. In particular, none of the examples should be considered advice tailored to the needs of any specific investor. Aperio recommends that all investors seek out the services of competent professionals in any of the aforementioned areas. With respect to the description of any investment strategies, simulations, or investment recommendations, Aperio cannot provide any assurances that they will perform as expected and as described in this article. Past performance is not indicative of future results. Every investment program has the potential for loss as well as gain. You cannot invest directly in an index.