Coverage: Monsanto rejects Bayer bid

Biotech seed company Monsanto Co. rejected a $62 billion acquisition offer from German drug company Bayer AG, but further conversations between the two companies may still happen.

Jacob Bunge of The Wall Street Journal had the day’s news:

Monsanto’s move, which was widely expected, puts pressure on the German pharmaceutical and chemical conglomerate to sweeten its offer despite protests from some of its investors. Those opposed to a tie-up fear that buying Monsanto would overload Bayer with debt or move the company deeper into agriculture at the expense of health care.

Monsanto Chief Executive and Chairman Hugh Grant said there could be “substantial benefits” to a deal, but the offer “significantly undervalues” the company and doesn’t address certain risks related to a deal, including potential financing and regulatory hurdles.

Monsanto’s board of directors unanimously viewed Bayer’s proposal as “incomplete and financially inadequate,” the company said, though it remained open to “continued and constructive conversations.”

Bayer said late Tuesday that it was pleased with Monsanto’s willingness to keep talking. The company said its $122 a share offer “provides full and certain value for Monsanto shareholders” and that Bayer is confident it can address any potential financing or regulatory challenges.

Greg Roumeliotis of Reuters examined why crop companies are consolidating:

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 agrochemicals companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes. Seeds and pesticides 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, Reuters reported at the time. 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.

Lydia Mulvany and Jen Skerritt of Bloomberg reported that Bayer remains confident it can get a deal done:

The conciliatory tone from both sides sets the stage for an improved offer from Bayer. While Monsanto has consistently traded at less than the $122-a-share offer price since the companies started discussing a deal, the stock rallied in after-hours trading in New York following Bayer’s latest comments, rising as high as $113.49.

Bayer investors have speculated the company doesn’t have much headroom to offer extra cash. The break-fee demanded by Monsanto may be much higher than normal because of the risk that industry consolidation will leave potentially fewer buyers for any assets sold off by Bayer-Monsanto to satisfy regulators, Bloomberg Intelligence analyst Jason Miner said. There’s also lingering concern over whether the deal will be passed by competition authorities as the combination of both companies could account for more than 30 percent of the global crop-inputs business.

“The regulatory hurdles are higher,” Miner said by phone. “You’re involving more countries and more political hot potatoes than maybe your typical M&A.”