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.
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