Bayer AG sweetened its takeover bid for Monsanto Co. (NYSE: MON) to $56 billion, raising its offer for a second time in its pursuit to become the world’s largest producer of seeds and pesticides. Monsanto responded to say that it’s evaluating the Bayer offer as well as proposals from other parties and strategic alternatives.
Technology advances and customer demand are driving mid-market agriculture deals. Agco Corp. (NYSE:AGCO) is acquiring Cimbria Holdings Ltd.; Advent said it will purchase Viakem; and Lariat Partners invested in Willowood USA.
Bayer would be prepared to pay $127.50 a share if the two sides can reach an accord, the Leverkusen-based company said in a statement. The new offer is 2 percent more than Bayer’s previous bid and 19 percent above St. Louis-based Monsanto’s last closing price. There’s no assurance an agreement will be reached, Bayer said.
The latest offer helped mute concerns that Bayer would overpay while stoking speculation that the German firm may take a hostile approach if negotiations over the price fail. Monsanto expects to get at least $130 per share, analysts at Commerzbank AG and Sanford C. Bernstein said.
“We see the current price offered as a last attempt to arrange for a negotiated transaction,” Peter Spengler, an analyst at DZ Bank AG, said in a note to clients. Bayer’s management team is likely to ask the supervisory board for approval for a hostile takeover when it meets, he wrote, and forecast that a deal would likely be completed at $130-$135 a share.
Bayer made its first offer of $122 a share in May. That was rejected by Monsanto as too low, as was the higher offer of $125 a share made in July, but Monsanto later granted its suitor some access to its financial accounts for the purposes of due diligence ahead of a potentially revised bid. Monsanto’s shares have declined since Bayer’s initial bid in May.
“We see the fairly modest raise as further indication that Bayer is feeling stretched by this deal, and is not willing to go north of $130,” Jonas Oxgaard, an analyst at Bernstein, said in a note to clients. Monsanto is unlikely to accept the current offer as “the company values itself well above $130 (even if we do not share that view).”
Oxgaard said the transaction had a 50 percent chance of succeeding in winning approval from regulators and the backing of lawmakers even if the two sides reach an agreement and make divestments.
The offer from Bayer marks a reversal of roles for the U.S. company. Monsanto has long sought to become a one-stop shop for farmers by boosting its crop chemicals portfolio to complement its seeds business. To that end, it had pursued the purchase of Syngenta AG on at least three separate occasions over the years.
The crop and seed industry is being reshaped by a series of large transactions that may end up leaving just a few global players who can offer a comprehensive range of products and services to farmers. China National Chemical Corp. agreed in February to acquire Syngenta. Meanwhile, DuPont Co. and Dow Chemical Co. plan to merge and then carve out a new crop-science unit.
Monsanto called off its Syngenta bid last year, while more recently it has revived talks to buy BASF SE’s agrochemicals unit. Falling crop prices have weighed on Monsanto’s profits and share price, making it vulnerable to a takeover.
Buying Monsanto would give Bayer a company that’s both the world’s largest seed supplier and a pioneer of crop biotechnology. The kind of genetically modified seeds that Monsanto started to commercialize two decades ago now account for the majority of corn and soybeans grown in the U.S. Monsanto also sells seeds in foreign markets including Latin America and India.
Monsanto was founded in 1901 and its first product was saccharin, the artificial sweetener. It produced highly toxic polychlorinated biphenyls, known as PCBs, until the late 1970s, and was also among companies to manufacture the mixture of herbicides known as Agent Orange. In the past two decades it has pioneered the commercialization of genetically modified organisms, or GMOs. GMO varieties of corn and soybeans now account for the majority of those crops in the U.S.
-- Additional reporting by Mergers & Acquisitions' Demitri Diakantonis