Bayer Could Pay $63 Billion To Acquire Monsanto

Now that Bayer AG's proposal to buy Monsanto Co. has become public, analysts tracking the situation said on Friday that the transaction could be worth as much as $63 billion. The takeover deal, if it goes through, would create the world's largest supplier of crop seeds and pesticides that could boast $67 billion in annual sales.

So far, neither side has disclosed details about the terms or structure of the purchase. It's unclear whether Monsanto is being receptive to the deal, which analysts project could result in an offer of $120-$150 a share for the company. Monsanto's investors would profit handsomely from such an offer, which would represent a premium of 66 percent on the St. Louis-based seed company's May 11 closing price. If successful, Bayer's purchase of Monsanto would be the largest ever takeover by a German company. Speculators are wondering how Bayer would afford such a huge purchase, and that concern sent its stock plunging seven percent on Thursday.

"Monsanto will not come cheap and may not be the best option for Bayer shareholders," Alistair Campbell, an analyst at Berenberg in London, said in a note to clients quoted by Bloomberg. "We cannot see how Bayer can do this deal without a significant equity component."

Monsanto's board of directors is reportedly reviewing the unsolicited, non-binding proposal for acquisition, though the company said there was no assurance the deal would go through. Bayer executives reportedly met with the Monsanto leadership to discuss the acquisition plan, saying a takeover would "create a leading integrated agriculture business," according to the Wall Street Journal. Bayer supervisory board member Reiner Hoffmann added that Monsanto "is a complementary business. There will be synergies."

Some questions remain as to whether regulators would bless such a huge takeover, which clouds judgement of whether Monsanto would be interested in such a deal. The agricultural sector is currently under heavy economic pressure after three years of falling prices. The income of farmers in the U.S. is at its lowest level in over a decade, and Monsanto itself has been forced to slash prices, de-fund research, and lower its profit forecast. It also plans to eliminate 16 percent of its staff. The Journal reported that the merger would result in a huge company with a wide range of products.

"Folding Monsanto's world-leading seed franchise and its trademark Roundup herbicide business into Bayer would create a company that could market products ranging from Aspirin pain-relief pills to crop genetics that enable plants to withstand bugs and weedkillers. The combination would sell about 28% of the world's pesticides and about 36% of U.S. corn seeds and 28% of soybean seeds, according to Morgan Stanley estimates."
Monsanto is currently the world's largest seed company in terms of sales, with $15 billion in seed and herbicide sales. Currently, about 22 percent of Bayer's business comes from agriculture, which would increase to 40 percent by buying Monsanto. Their geographic markets would be highly complimentary, as Monsanto's base is in North America while Bayer's is in Europe and Asia. Bayer also doesn't do much business with corn and soybeans, which are the largest crops in the U.S. The deal may also be a reaction to tougher competition due to further consolidation among global agricultural giants, according to the Journal.
"Monsanto sparked the deal fervor last year with an unsuccessful, $46 billion bid for Swiss rival Syngenta AG, which ultimately agreed to sell itself to China National Chemical Corp., while Dow Chemical Co. and DuPont Co. unveiled their own merger. That left the other major global seed and pesticide players—Monsanto, Bayer and BASF SE—to potentially face enlarged rivals, and entertain a narrower range of potential partners."
The takeover could require Bayer to divest its herbicide business, which is competition for Monsanto's Roundup.

[Photograph by Brent Stirton/Getty Images]