Bayer raises Monsanto bid as investors still skeptical

Chitra Somayaji, Lydia Mulvany and Johannes Koch

Bayer AG has raised the stakes in its attempt to buy Monsanto Co. and create a chemical and agricultural giant.

The Bayer AG corporate logo is displayed on a building of the German drug and chemicals company in Berlin, Germany, May 23, 2016.

Two months after its first offer for the seed and farm products manufacturer was rejected, the German company upped its bid to $54.7 billion in cash, a $3-a-share increase to $125 a share. Thursday’s proposal came just hours after news that St. Louis-based Monsanto might entertain a deal with another German chemicals giant, BASF SE.

So far, investors appear skeptical that either suitor has what it takes. Monsanto’s shares gained 3.1 percent to close at $104.22 in New York, well below the value of Bayer’s offer.

Yet the developments at Bayer, Monsanto and BASF all underscore the brisk consolidation sweeping the chemicals business, as well as Bayer Chief Executive Officer Werner Baumann’s determination to form the world’s largest supplier of crop seeds and chemicals. Monsanto said Thursday that its board was reviewing the offer, which includes several sweeteners to try and get the transaction done.

Along with the 2.5 percent increase in the price, Leverkusen, Germany-based Bayer offered an “antitrust break fee” of $1.5 billion, according to a statement on Thursday. Monsanto, the world’s largest seed supplier, said Thursday its board of directors will review the increased proposal.

Driver’s Seat

“From a Monsanto perspective, the BASF combination is better because they would be the ones in the driver’s seat,” Jason Dahl, a New York-based senior portfolio manager at Victory Capital Management Inc., said by phone. “In a Bayer takeover, the U.S. would lose one of its great assets.I hate to see the company fall in the hands of someone else.”

Monsanto has revived talks withBASF about a possible combination of their agrochemicals businesses, people familiar with the matter said this week. The U.S. company is exploring various transactions, including the potential acquisition of BASF’s agriculture-solutions unit, the people said, asking not to be identified as the discussions are private. In return, BASF would likely receive newly issued shares in Monsanto, the people said. Discussions are at an early stage, and no final decisions have been made as talks with Bayer are continuing, they said.

For a primer on Bayer from Bloomberg Intelligence, click here.

Regulatory Scrutiny

One of the key concerns has been that a deal between Monsanto and Bayer, coming amid a wave of megadeals in the agricultural-chemicals and seeds industry, may invite close scrutiny from regulators. While Dow Chemical Co. and DuPont Co. are progressing with their planned merger relatively quickly, the planned $43 billion takeover of Syngenta AG by China National Chemical Corp. has attracted regulatory and political scrutiny.

Buying Monsanto would give Bayer a controversial pioneer of genetically modified crops, which while valuable, have also been a lightning rod for environmental activists in Europe and elsewhere.

“We are convinced that this transaction is the best opportunity available to provide Monsanto shareholders with highly attractive, immediate and certain value,” Bayer’s Baumann said in the statement. “Bayer is fully committed to pursuing this transaction.”

Bayer said it verbally raised its offer on July 1, and followed up with a proposal sent to Monsanto on July 9. The initial bid valued Monsanto and its debt at $62 billion, and was rejected on May 24 as “incomplete and financially inadequate.”

A spokesman for Bayer refused to disclose the enterprise value of the latest bid.

Global Leader

Driving the potential deal is Bayer’s ambition to become the global leader in pharmaceuticals and chemicals for people, plants and animals. Though the negotiations were set in motion with talks on April 18 under his predecessor, Marijn Dekkers,Baumann is responsible for completing the transaction and then making it work.

The 152-year-old company, which trademarked the brand names “heroin” and “aspirin,” was founded by two friends who made dyes from coal-tar derivatives. Over the following decades, they expanded into other chemicals and pharmaceuticals, introducing heroin as a cough remedy in 1896 and then aspirin, the world’s first blockbuster drug, in 1899.

The takeover discussions mark a reversal of roles for Monsanto, which had previously sought to buy Swiss pesticide maker Syngenta, abandoning the $43.7 billion bid in August after the other company refused to agree to a deal.

With assistance from Ketaki Gokhale