If their sharemarket performance are any guide, Bayer is going to fail in its massive $A85 billion bid for the American group, Monsanto, and investors in Monsanto agree.
Bayer shares fell more than 5% on Monday to new 30-month lows as investors doubted the huge $US122 a share offer for Monsanto and its suite of leading crop seeds and agrichemicals.
That took the loss since news of the Bayer interested leaked on May 9 to more than 15% and 24% for the year to date. Analysts say the weakness combines investor unease at the huge debt Bayer will have to take on to pay the cash offer, and the likely opposition to the deal from regulators in the US, EU, China and even Australia.
Bayer plans to tap shareholders for some $A21 billion of the cash needed. Shareholders don’t like being strong-armed into a deal just to avoid having their existing holding diluted.
Monsanto shares rose by 4.5% to $US106, well under the offer price from Bayer and a firm indicator that not even performance hungry hedge funds have a real understanding of the dynamics of this battle.
They also fear regulatory intervention to stymie the deal and are not prepared to push the price higher to the $US122 a share level in the hope of a higher offer to clinch approval from the Monsanto board.
Bayer’s $US122 a share cash offer values the US agribusiness at a massive $US62 billion, which is the biggest ever bid from a German company.
The offer represents a 37 per cent premium to Monsanto’s undisturbed share price of $US89.03 on May 9. Monsanto shares are up half that premium, or 19%, from May 9, which is also a tentative thumbs down to the future success of the offer.
Bayer says buying Monsanto would be a “compelling opportunity to create a global agricultural leader”. Bayer said it expected annual synergies of about $US1.5 billion after the third year, plus additional benefits in future years.
“We have long respected Monsanto’s business and share their vision to create an integrated business that we believe is capable of generating substantial value for both companies’ shareholders,” said Werner Baumann, Bayer’s chief executive in a statement.
But the deal will be decided by regulators in the US, EU, China and Australia, not by shareholders of both companies.
Analysts see an anti-trust overlap in the seeds business, particularly in soybeans, cotton and canola. Bayer’s LibertyLink line of weed killers, plus crops that are resistant to it, are an important alternative for farmers suffering from weeds that have grown resistant to Monsanto’s Roundup herbicide. Combing the two products would be a red light for regulators. Some analysts point to a paragraph in Bayer’s press release as identifying the core regulatory problem:
"This transaction would bring together leading Seeds & Traits, Crop Protection, Biologics, and Digital Farming platforms. Specifically, the combined business would benefit from Monsanto’s leadership in Seeds & Traits and Bayer’s broad Crop Protection product line across a comprehensive range of indications and crops. The combination would also be truly complementary from a geographic perspective, significantly expanding Bayer’s long-standing presence in the Americas and its position in Europe and Asia/Pacific. Customers of both companies would benefit from the broad product portfolio and the deep R&D pipeline.”
US analysts there are a number of questions raised by that paragraph, such as “expanding Bayer’s long-standing presence in the Americas and its position in Europe and Asia/Pacific.”
A US court earlier this month supported regulatory opposition to the $US6.3 billion merger between office products groups, Staples and Office Depot and one of the reasons for the decision was the court’s acceptance of a lack of viable alternate suppliers of office products to consumers if the two companies were allowed to merge.
Bayer and Monsanto are giants in seeds and agrichemicals, especially herbicides and pesticides. That will be a big sticking point to regulators.
And other analysts point out that Chinese opposition to any tie up should not be ignored. ChemChina is buying Switzerland’s Syngenta for $US43 billion after Syngenta rejected a bid from Monsanto.
That gives China a major presence in seeds and other agricultural products and global standing. It will fear that presence being devalued by any tie up between Bayer and Monsanto.
