Monsanto Company Isn’t Popular, but It’s the Target of a Major Deal
Monsanto Company (NYSE:MON), while not the most popular of companies with some folks, has delivered value for shareholders. Monsanto stock has suffered considerably since the summer of 2015. Between August and September of that year, MON stock lost some 20% of its value. It’s no surprise that for the past two years, MON shares have been two percent cheaper.
Still, in 206, Monsanto stock has performed steadily better, gaining 17.74% for the past six months and over eight percent year-to-date. One of the drivers of this resurgence has been the persistent rumor of an imminent takeover. That rumor is fast transforming into actual fact as the German chemical and pharmaceutical giant Bayer AG (OTCMKTS:BAYRY) seems ready to buy Monsanto, the world’s largest seed manufacturer.
Bayer-Monsanto Merger by the End of Next Week?
Monsanto stock could see some major gains as early as next week. Indeed, Monsanto and Bayer appear to be on the verge of signing an agreement, according to CNBC. The deal should come in at about $120.00/share. (Source: Bayer, Monsanto deal likely late next week; priced in high $120s: Sources, CNBC, Sept. 9, 2016.) At the time of writing, shares of Monsanto were trading at $106.00.
However, rumors have also indicated that Bayer would be willing to pay $65.0 billion for the global seed manufacturing giant. This would mean closer to $130.00/share. (Source: Bayer sweetens Monsanto bid as talks enter final stretch, Reuters, Sept. 6, 2016.) The St. Louis-based seed giant will likely prolong the negotiations to secure the highest possible price. There are also rumors of other offers.
Some shareholders have already expressed criticism towards the proposed merger on the grounds that it would increase the group’s exposure to agriculture at the expense of its activities in the pharmaceutical industry. Bayer has already acted rather generously with its offers. Monsanto has rejected Bayer’s earlier offers of $122.00 to $125.00 per share.
Monsanto Must Act Promptly or Risk Major Drop in Value
Yet, Monsanto does not have as much power as it would like. The pressure for lower seed and crop prices, meanwhile, has made it necessary for Monsanto to find a major partner. This means that while it can play games with Bayer, it must reach a decision soon. It’s actually more of a buyer’s market than a seller’s market in the agrochemical sector. Indeed, some Bayer shareholders, inevitably, have expressed objections over the Monsanto acquisition. It seems a successful deal would end up exposing Bayer to a whole different ballgame when it comes to risk.
The Bayer-Monsanto marriage, if consummated, would create a new world agrochemical leader. Meanwhile, Chinese chemical giant ChemChina is bidding for Monsanto’s most visible competitor, Syngenta AG (VTX:SYNN), for some $43.0 billion. Earlier this year, Dow Chemical Co (NYSE:DOW) and E I Du Pont De Nemours And Co (NYSE:DD), also known as DuPont, agreed to merge their activities in this area to create a group valued at $130.0 billion.
Therefore, at this point, Monsanto has little choice but to accept the Bayer deal. An independent Monsanto would drown under the wave of mergers that will rock the sector before the end of the year. Monsanto would add to Bayer’s exposure to the U.S. genetically modified seeds industry—in Europe, GMO products face more scrutiny and are banned in most member states—and pesticides.
Meanwhile, Monsanto would gain access to Bayer’s chemical products. The only obstacle might come from BASF SE. Bayer’s German rival in the agrochemical sector may raise antitrust issues. One thing is certain: Bayer wants Monsanto badly. Already in mid-August, Bayer had hinted that it would resort to a hostile takeover of MON stock should the talks fail. Bayer is so eager to acquire Monsanto’s agribusiness that it’s willing to get rid of its lucrative dermatology business to get it.
Bayer has expressed willingness to sell its dermatology division. It has already contacted investment banks to prepare a deal and find buyers, which could include Galderma (Nestle Group), or Allergan Plc. (NYSE:AGN), according to Bloomberg.
That possibility would likely entail a higher purchase price than the proposed best offer of about $130.00/share. This is why Monsanto will delay the agreement as long as possible. But, the fact that Syngenta and ChemChina are also in the midst of merger talks is putting pressure on Monsanto. So, look for a deal to conclude by September 16.