Company says it is still willing to talk, but market analysts question whether Bayer can justify raising its proposed price
(Reuters) — Monsanto Co., the world’s largest seed company, has turned down Bayer AG’s $62 billion acquisition bid as “incomplete and financially inadequate” but said it was open to engage further in negotiations.
Monsanto’s decision puts pressure on Bayer to decide whether to raise its bid, even as the company faces criticism from some shareholders that its $122 per share cash offer is already too high.
Monsanto shares initially rose following the official take-over bid announcement May 23 but then drifted lower over the week and were trading at a little less than $109 late May 27. Monsanto shares were trading at less than $100 before rumours began in mid-May of Bayer making a bid.
“We believe in the substantial benefits an integrated strategy could provide to growers and broader society, and we have long respected Bayer’s business,” Monsanto chief executive officer Hugh Grant said in a statement.
“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.”
Bayer responded that its $122 per share offer represents “full and certain value” for Monsanto shareholders, but that it looks forward to engaging in constructive discussions with Monsanto.
“We are confident that we can address any potential financing or regulatory matters related to the transaction,” Bayer CEO Werner Baumann said in a statement.
“Bayer remains committed to working together to complete this mutually compelling transaction.”
It was not clear what price Monsanto would be willing to sell for, but several analysts have suggested Bayer would have to pay much more than the current offer to clinch a deal.
“We believe it is unlikely that the deal gets done at $122 and still believe $135 is a more likely price,” JPMorgan analysts wrote in a research note.
Manning & Napier Advisors LLC, an investment management firm that is Monsanto’s 14th largest shareholder according to Thomson Reuters data, agreed with Monsanto’s decision to seek a higher offer.
“Monsanto’s assessment that the initial offer was inadequate is valid, as we believe it does not appropriately value the company’s existing product portfolio,” said Michael Knolla, a managing director at Manning & Napier.
Global agrochemical companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes. Seed and pesticide markets are also increasingly converging. This has driven Monsanto to consider a tie-up to build strength.
Monsanto approached Bayer in March to express interest in its crop science unit. Among the possibilities discussed were an outright acquisition of the crop science unit and a joint venture or other type of partnership between the two companies.
ChemChina plans to buy Switzerland’s Syngenta for $43 billion, after Syngenta rejected a bid from Monsanto. Dow Chemical Co. and DuPont are forging a $130 billion business.
With German rival BASF SE having previously considered a venture with Monsanto, Bayer has moved to avoid being left behind.
Bayer’s unsolicited bid for Monsanto is the largest all-cash takeover on record.
Bayer said it would finance its cash bid with a combination of debt and equity.