Monsanto says its board of directors has unanimously rejected Bayer’s $62-billion takeover proposal, saying it is “incomplete and financially inadequate” but that Monsanto remains “open to continued and constructive conversations” to assess whether a transaction in the best interest of Monsanto shareowners can be achieved.
“We believe in the substantial benefits an integrated strategy could provide to growers and broader society, and we have long respected Bayer’s business,” says Hugh Grant, Monsanto chairman and CEO. “However, the current proposal significantly undervalues our company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition.”
The potential transaction, uniting Bayer CropScience, the number-two crop protection player, behind Syngenta, with Monsanto, the leading seeds player, would create an agchems giant with 2015 sales of $26.5 billion, of which 46% is seeds. The $122/share offer, based on Bayer’s written proposal to Monsanto on 10 May, represents a premium of 37% over Monsanto’s closing share price of $89.03 on 9 May, 36% over the 3-month volume-weighted average share price, and 33% over the 6-month volume-weighted average share price and a last-12-months Ebitda multiple of 15.8 as of 29 February.
Analysts predicted that Monsanto would find the offer inadequate. “This will not be enough,” says Jeremy Redenius, analyst at Bernstein Research. “In our view, a deal closer to $135/share [valuing Monsanto at $68.6 billion] will be needed to get the deal done. We think Monsanto won’t accept a bid below $135 (around 17 times [enterprise value]/Ebitda—what ChemChina paid to acquire Syngenta). With an offer price at $135/share, the additional $6 billion cash would most likely have to be funded in equity. This additional equity raised would take the deal from low-double-digit accretive to low-single-digit accretive.”
In a conference call with investors on Monday, Bayer CEO Werner Baumann said there had been “discussions [with Monsanto] on multiple occasions in the last years regarding potential avenues to realize our shared vision from cooperation in specific areas to R&D agreements. Following thorough consideration and preparations, we strongly believe that it is actually the combination of the two businesses that captures best the inherent value, and we are fully committed to pursuing this transaction.”
The combination would “create a fully integrated leader in the agricultural industry,” Baumann adds. “We will be able to offer a broad product portfolio across seeds and traits, crop protection, and biologics and can draw on an R&D platform with capabilities in all relevant technologies and a broad and deep combined product pipeline to deliver better solutions for farmers.”
Liam Condon, head of Bayer’s CropScience business, downplayed regulatory concerns when asked about the overlap between Bayer’s LibertyLink and Monsanto’s Roundup herbicide businesses. “[B]ecause this is such a highly complementary deal, we see very little overlap and we’re very confident of getting all necessary regulatory approvals.”
Bayer’s bid comes at the tail end of a major wave of consolidation in the agchem industry as it grapples with a sustained cyclical downturn. Weak ag results were a driving factor behind the planned, $130-billion Dow Chemical–DuPont megamerger, announced late last year. Syngenta, the global leader in pesticides, has also agreed to a $43-billion takeover offer from ChemChina following a failed bid by Monsanto.
Morgan Stanley & Co. and Ducera Partners are acting as financial advisers, and Wachtell, Lipton, Rosen & Katz is acting as legal adviser to Monsanto.
By Rebecca Coons
Source: Chemical Week
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