Towards A Bayer Monsanto Combination?

bayer monsanto merger

Monsanto (NYSE: MON) has received a non-binding proposal from Bayer (ETR: BAYN) regarding a takeover that could be worth US$70 billion including debt

Less than 6 months after the failed takeover attempt of Syngenta (VTX: SYNN) by Monsanto, the German chemical giant Bayer has decided to make a move to bolster its position as a life sciences company. A typical acquisition premium of 30-40% means an offer for Monsanto could yield US$117 – US$125/share (the stock was trading at ~US$90/share before the news that Bayer was on the lookout for an acquisition came out a week ago).

The offer is coming in the wake of an agricultural commodities price slump that has seen Monsanto’s sales fall 13% year over year in the most recent quarter. A takeover would strengthen Bayers’ seed division while diversifying Monsanto’s revenue base away from the agriculture industry, since its German acquiror is involved in other domains such as pharmaceuticals, consumer and animal health.

The proposed terms have not yet been revealed and nothing is done yet, so this is a potential transaction to keep on the watch list. If it ends up getting announced, it will be interesting to review the exact agreement and see if there is an arbitrage opportunity to profit from. What’s certain is that antitrust risk will be central to the analysis, as the seeds and crop chemicals industry is a concentrated one with already pending mergers.

Shares of Monsanto closed 3.5% up after being 8% higher earlier in the trading session; shares of Bayer closed 8% down amid concerns of the size of the equity issuance that’d be required for Bayer to finance the deal.

Disclosure: No position in any of the stocks mentioned in this article.

This article expresses an opinion and the author does not receive compensation for it and has no business relationship with any company whose stock is mentioned in this article; do your own due diligence before making investment decisions.

4 thoughts on “Towards A Bayer Monsanto Combination?”

  1. Hi

    Do you have an updated view on this potential deal based latest events? Any other potential buyers that could join?


    1. Hi

      Thanks for commenting.
      With Bayer having increased its offer, I believe it’s only a question of time before Monsanto opens their books to them.
      Maybe that will require another small increase of the offer, but that is where it is going.
      It is not known how many other buyers Monsanto is talking to at the moment but Reuters had reported that Monsanto had discussed with BASF.
      To me, it looks like Bayer is committed to a deal. If they cannot convince Monsanto to provide more information in order to conduct their due diligence with this offer or a higher one, they may end up making an offer directly to Monsanto’s shareholders.
      However, I have a feeling that Monsanto will give them access before that. It is not in their best interest to have this deal turn hostile.
      For now, they’re just trying to get the offer as high as possible before starting a formal negotiation process and that’s fair, but they cannot afford to let things drag on for too long.

  2. Merger terms announced. $128/sh vs. current ~$106. Deal expected by end of 2017. Given breakup fee and months of bidding, they seem committed to divestitures necessary to get deal by regulators.

    So looks like 21% to buyout price, or 17% annualized (assuming 15 months to completion, at the long end)


    1. Agreed. And they will likely find buyers for the divestitures such as BASF. The deal is said to be expensive by some but it’s all cash so Bayer’s shareholders won’t get a say. May write a follow up post over the next few weeks on this one when I get back from vacation 🙂

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