Monsanto Company: This Is Why Shares of Monsanto Stock Are Going Ballistic

Monsanto CompanyBig News for Monsanto Stock

Shares of Monsanto Company (NYSE:MON) stock are surging Thursday morning following rumors the company could be an acquisition target.

On Thursday, Bloomberg reported chemical and pharmaceutical giant Bayer AG (ADR) (OTCMKTS:BAYRY) is considering making a bid for the ag-chemical company Monsanto. If completed, the combined firm would become the largest agriculture chemical and seed supplier in the world. (Source: “Bayer Said to Explore Bid for $40 Billion Seed Company Monsanto,” Bloomberg, May 12, 2016.)

Following the announcement, shares of Monsanto’s stock surged by as much as 20% in pre-market trading. Investors, though, dialed back their enthusiasm as they digested the report. As of 10:00 a.m. EST, shares of MON stock were up 9.7% to $99.08 per share.

Such a deal could be a win-win for both companies. For Bayer, it would strengthen the company’s seed business—something that has been highlighted as a priority by management. For Monsanto, it would help reduce its reliance on the agricultural sector.

An acquisition could also boost profits. Job cuts and other synergies would provide a quick boost to the bottom line. Given both of these companies compete in some of the same businesses, an acquisition deal would also reduce competition in many markets.

If Bayer makes an offer, it could spark a bidding war for Monsanto stock. According to sources close to the matter, any proposal would likely force German chemical giant BASF to make a counter-offer. With the wave of consolidation in the chemical space, companies are eager to make a deal happen.

Any acquisition, however, could face challenges from governments. Global regulators have cancelled more than $20.0 billion in deals this week worldwide, following concerns that lower competition could harm consumers. And given the public animosity towards Monsanto, any deal will be difficult to get approved.