German agrochemical company Bayer has planted the seeds for a controversial takeover effort of seed giant Monsanto.
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Drugs and crop chemicals group Bayer, which is best known for its life sciences business that includes products like Aspirin, Alka-Seltzer, Claritin, Coppertone Sunscreen and Xarelto, has offered to pay $122 a share in cash. Monsanto shares rose 2.1 percent to $108.27 at 11:10 a.m.in NY.
There have been talks about the merger for some time and last week Monsanto chose to issue a statement on the issue, stating that it Bayer had in fact placed a bid. “The danger is that you start then having discussions about how you are going to fund a higher offer, because they are already stretching the balance sheet”.
Monsanto’s market value is around $42 billion.
Werner Baumann, CEO of Bayer had this to say about the impending deal, “We have long respected Monsanto’s business and share their vision to create an integrated business that we believe is capable of generating substantial value for both companies’ shareholders”.
That is a 37 per cent premium to Monsanto’s May 9 closing price. One, Bayer’s shareholders are anxious over the $90-billion crop sciences behemoth’s appetite to take on more debt and dilute equity holdings.
Of course, in that time frame, Monsanto has suffered a string of setbacks, including its failed acquisition of Swiss chemicals company Syngenta (NYSE:SYT), which subsequently agreed to be bought by China National Chemical.
Berenberg analysts, who have a “buy” rating on Bayer shares, described the synergies estimate as “very ambitious”.
Monsanto rejected Bayer’s $62 billion takeover bid, calling it “incomplete and financially inadequate”. Monsanto shares jumped 4.4 percent to $106.
The deal will add to core earnings per share by a mid-single-digit percentage in the first full year after completion, and a double-digit percentage thereafter, Bayer said. “We are utterly convinced of the rationale” of the proposal.
The reaction from Monsanto was expected as Bayer’s shareholders and analysts did not seem too enthusiastic for the deal. But the company is a German pharmaceutical and chemical powerhouse with 102,000 employees and $41 billion in revenue past year.
Monsanto said on Thursday it was consulting financial and legal advisers.
“The price that has now been disclosed is at the upper limit and it is just about economical”.
Monsanto management “talk about 2025 the way other companies talk about 2017”, he said.
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In a separate statement, Monsanto said its board is reviewing the proposal.
