by Johannes Koch, Aaron Kirchfeld and Ruth David
Bayer AG made an unsolicited takeover offer for Monsanto Co. in a bold attempt by the German company to snatch the last independent global seeds producer and become the world’s biggest supplier of farm chemicals.
Related: Bayer said to eye bid for Monsanto
The St. Louis-based company, with a market value of $42 billion, said it’s reviewing the offer in a statement Thursday. It didn’t disclose the terms of the proposal. Bayer, confirming the bid, said the combination would bolster its position as a life sciences company. Bloomberg News was first to report a week ago that Bayer was exploring a potential takeover.
Shares of Bayer plunged amid concern that a large purchase would weigh on its credit rating and force the company to sell more stock. The proposal by Werner Baumann, who’s been at Bayer’s helm for less than a month, follows Monsanto’s failed attempt to buy Syngenta and the proposed merger of Dow Chemical Co. and DuPont Co.
To help finance its quest to buy the world’s largest seed maker, Bayer is considering asset disposals and a share sale, according to people familiar with the matter, who asked not to be identified because discussions are private. The German company is exploring the potential disposal of its animal-health business and the remaining 69% stake in plastics business Covestro AG, the people said. Animal health could fetch $5 billion to $6 billion, according to one of the people, and the Covestro holding is worth about $5.5 billion.
If Bayer buys Monsanto, it could be the biggest acquisition globally this year and the largest German deal ever, according to data compiled by Bloomberg. A takeover of Monsanto would require an enterprise value of as much as 65 billion euros, according to analysts at Citigroup Inc.
Bayer fell 7.4% to 89.13 euros, the lowest in more than 2 1/2 years, as of 1:39 p.m. in Frankfurt trading. The shares had dropped 17% this year, through Wednesday. Monsanto shares rose in pre-market trading to $105.37, after closing at $97.13 in New York on Wednesday.
Merging Monsanto with the company that invented aspirin would bring together brands such as Roundup, Monsanto’s blockbuster herbicide, and Sivanto, a new Bayer insecticide.
Monsanto is particularly vulnerable to a takeover after piling up a mountain of problems this year. The company has cut its earnings forecast, clashed with some of the world’s largest commodity-trading companies and become locked in disputes with the governments of Argentina and India. Shares are down 19% in the past 12 months.
“It’s a relentless string of bad news,” Jonas Oxgaard, an analyst with Sanford C. Bernstein & Co. in New York, said. “It’s almost like they forgot to sacrifice a goat to the gods.”
A wave of deals is already reshaping the seed and crop-chemicals industry. China National Chemical Corp. agreed in February to acquire Switzerland’s Syngenta AG for about $43 billion, months after Monsanto abandoned its own bid for Syngenta. DuPont and Dow plan to merge in a $65.6 billion deal and then carve out a new crop-science unit.
A completed acquisition would extend a record-setting pace of consolidation in the global chemicals sector, which has seen $84 billion of deals this year as low crop prices encourage mergers, according to data compiled by Bloomberg. With a premium, a takeover of Monsanto could surpass ChemChina’s purchase of Syngenta as the largest acquisition globally this year, the data show.
A price around $120 to $125 a share, representing a premium of 35% to 40%, would probably be needed to get a Bayer-Monsanto deal done, Bernstein analysts Jeremy Redenius and Ronny Gal wrote in a note to clients Thursday.
“Despite the ongoing consolidation in the agrochemicals market, we believe there is no need for Bayer to rush into a deal with Monsanto,” Bankhaus Lampe KG analyst Volker Braun said in a research note. “We see enough opportunities arising from pending M&A transactions in the industry to buy assets at better prices and more favorable risk profiles.”
Monsanto is facing a slump in agricultural commodities and its offer to buy Syngenta for about $46.2 billion was spurned last year. Sales in the quarter ending in February fell 13% from a year earlier to $4.53 billion. Prices for corn and soybeans declined in the last three calendar years, hurting demand for everything from tractors to weedkiller.
A deal with Bayer would help the company reduce its reliance on the agriculture industry, while Monsanto would strengthen Bayer’s seed business, one of the company’s priorities.
Morgan Stanley & Co. and Ducera Partners are Monsanto’s financial advisers, and Wachtell, Lipton, Rosen & Katz is its legal adviser.
Bayer in an e-mailed statement confirmed that it had recently met with Monsanto executives to “privately discuss a negotiated acquisition” of the seedmaker.
Monsanto was founded in 1901, its first product the artificial sweetener saccharin. It introduced one of its first genetically modified seeds in 1996, Roundup Ready soybean, spawning heated controversy with critics of biotechnology. Bayer’s products range from blood thinner Xarelto to consumer products and pest-control treatments for farmers.
Bayer is transitioning to new leadership. Strategy head Baumann took over from Chief Executive Officer Marijn Dekkers this month. Dekkers has already reshaped Bayer, increasing its focus on life sciences by buying Merck & Co.’s over-the-counter medicines business and divesting a stake in its plastics unit.
--With assistance from Ed Hammond, Jen Skerritt, Simon Casey, Anjali Cordeiro, Kristen Hallam, Chiara Remondini, Manuel Baigorri and Dinesh Nair.
To contact the reporters on this story:
Johannes Koch in Berlin at [email protected]
Aaron Kirchfeld in London at [email protected]
Ruth David in London at [email protected]
To contact the editors responsible for this story:
Chitra Somayaji at [email protected]
© 2016 Bloomberg L.P