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 Monsanto Co disclosed the approach on Wednesday before Bayer AG
confirmed its move, though neither released proposed deal terms.
With Monsanto's market capitalization of around $42 billion, an
acquisition would likely be bigger than ChemChina's February deal to
buy Swiss agrichemicals firm Syngenta AG for $43 billion - a target
Monsanto itself pursued last year - and could face U.S. antitrust
hurdles.
Monsanto said in a statement its board was reviewing the proposal,
which is subject to due diligence, regulatory approvals and other
conditions. There is no assurance that any transaction will take
place, it said.
Bayer shares dropped more than 8 percent to a 2-1/2 year low of
88.39 euros in early Thursday trading, as some investors worried
about the potential cost of a deal. Monsanto's stock closed 0.6
percent lower at $97.13 on Wednesday before the news.
UBS Global Asset Management, a top-30 investor in Bayer according to
Reuters data, said it was "deeply concerned" about the takeover
approach, saying it would prefer the two firms to agree a joint
venture or a nil-premium merger.
Bayer, which has a market value of $90 billion, said in a brief
statement its executives recently met those of Monsanto to privately
discuss a negotiated acquisition. A further statement will be made
as appropriate, it said.
It said the merger would create "a leading integrated agriculture
business", a reference to Bayer's push to seek more synergies from
combining the development and sale of seeds and crop protection
chemicals.
Most of the major agrichemical firms are aiming to genetically
engineer more robust plants and custom-build chemicals to go with
them, selling them together to farmers who are currently struggling
with low commodity prices.
While no takeover price was mentioned by either company, Bernstein
Research analyst Jeremy Redenius estimated 41.9 billion euros ($47
billion), plus 6.7 billion euros in assumed debt. He said Bayer
might need a 27-billion-euro share issue to help fund this.
Citi analysts have said Bayer would likely need to pay 14-16 times
Monsanto's core earnings, implying a takeover price including debt
of 57-65 billion euros.
They added a sale of Bayer's stake in foam chemicals maker Covestro
might raise about 4 billion euros, while its animal health business,
which Bayer has said it might put on the block, could fetch up to 7
billion euros.
The proposal comes as Chinese state-backed ChemChina's deal for
Syngenta faces regulatory review in the United States over concerns
about the security of U.S. food supply.
Any deal between Bayer and Monsanto, which would be Bayer's largest
by far and dwarf the 17 billion euro takeover of drugmaker Schering
in 2006, could raise U.S. antitrust concerns because of an overlap
in seeds business, particularly in soybeans, cotton and canola,
antitrust experts have said.
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The proposal comes less than three weeks after Werner Baumann's took over as
Bayer chief executive, a sign of the power base he built in his previous role as
strategy chief. Sources told Reuters previously he would not shrink from large
deals.
Bayer, the inventor of aspirin and maker of Yasmin birth control pills, is much
more diversified than Syngenta or Monsanto, with products including cancer
drugs, flea and tick collars for pets and Coppertone sunscreen. Some analysts
have said a deal with Monsanto could lead to a break up of the group.
Bayer's crop science division has businesses in seeds, crop protection and
non-agricultural pest control, potentially complementing Monsanto's seeds
assets.
BAYER, BASF AMBITIONS
Both Bayer and German rival BASF SE have been looking to build scale in
agrichemicals, and while Monsanto said after failing to clinch Syngenta that it
didn't need to do a deal, it has also been involved in discussions.
Monsanto approached Bayer earlier this year to express interest in the latter's
crop science unit, in the form of an acquisition or joint venture, sources told
Reuters in March.
Both Bayer and BASF had been exploring tie-ups with Monsanto for months, but
valuation concerns have made a deal elusive, people familiar with the matter
have previously said.
Bayer is ranked No. 2 in crop chemicals, with an 18 percent market share, just
behind Syngenta on 19 percent, according to industry data.
Monsanto is the leader in seeds, with a 26 percent market share, followed by
DuPont with 21 percent. DuPont agreed last year to merge with Dow Chemical. Any
Bayer-Monsanto deal would further reduce the number of major players in seeds
and pesticides to four from the current six.
Morgan Stanley & Co and Ducera Partners are financial advisers to Monsanto, the
company said in its statement, while Wachtell, Lipton, Rosen & Katz is legal
adviser.
($1 = 0.8920 euros)
(Additional reporting by Ludwig Burger in Frankfurt and Victoria Bryan in
Berlin; Editing by Kenneth Maxwell and Mark Potter)
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