MergerMarket
Bayer [ETR: BAYN] has been seeking to reassure shareholders during its management roadshow that it will remain price disciplined in its pursuit for Monsanto [NYSE:MON], according to a person familiar with the matter and a top-15 shareholder in the German group.
The roadshow started on 24 May in London and is coming to an end in New York today, according to a second person familiar with Bayer. A lunch meeting in New York yesterday (2 June) saw around 70 attendees, the first person said.
On 24 May, Monsanto rejected Bayer’s proposed all-cash offer at USD 122 a share as it was deemed “incomplete and financially inadequate,” but the company remains open to discussing a potential path forward.
Bayer managers, including CEO Werner Baumann, displayed "reticence on raising the price" in meetings with shareholders this week, the person said.
Roadshow attendees were left with the impression Bayer was committed to securing Monsanto, but not at any price, the top-15 shareholder agreed. Bayer could conceivably shift to a level around USD 135 a share while still claiming to be price disciplined, the shareholder added. A bid of up to USD 140 a share might still be in this category, a second shareholder said.
But the attitude of management in meetings points to market speculation about bids of USD 150-USD 160 as being far-fetched, the top-15 shareholder said.
Baumann and other Bayer executives are excited about the Monsanto deal, but have said they do not class it as essential to complete the mega-merger, the person said.
The top-15 shareholder said he did not support the acquisition and would prefer Bayer to have a key focus on healthcare. Assuming the Monsanto deal closes, the group would be roughly 50% weighted to crops chemicals, the person said.
However, Bayer does not require shareholder backing to move ahead with a rights issue to part finance its move for Monsanto, the person noted. Management has blanket authorization to issue equity up to 25% of its current outstanding shares from its 2014 AGM, expiring on 28 April 2019.
The German group has reportedly secured a financing of approximately USD 63bn with JPMorgan Chase, HSBC, Goldman Sachs, Credit Suisse and Bank of America, with each willing to provide short-term loans of about USD 12.5bn, which can be increased if the group opts to raise its offer of USD 122 a share. In its 23 May proposal, Bayer said it would finance some 25% of the cash consideration with a rights issue.
The effort to curry favour with shareholders shows in Bayer's stock market price, the second person said.
Bayer shares were trading at EUR 100 before rumours of its Monsanto approach emerged. The stock closed today (Friday) at EUR 89.41, or 7.14% above its 52-week low of EUR 83.45, set on 24 May when Monsanto rejected the bid.
However, the share price move does not mean shareholders suddenly love the deal, the first person argued. Some shareholder anger about Bayer increasing its crops exposure versus pharma persists, as does frustration over the dilutive rights issue, the person said.
There has likely been a degree of churn with pharmaceuticals-focused investors selling out. With Bayer at a low ebb and not rushing back with a bid bump after 24 May, chemicals investors likely bought in, supporting the stock, the person added.
The share price moves more likely simply reflect market volatility, the two shareholders said.
Bayer has discussed with shareholders the disadvantages of pursuing a crops joint venture (JV) with Monsanto, rather than a full takeover, the person said.
Management indicated Bayer would have been happy with a Monsanto JV, but suggested it could not reach agreement with Monsanto on valuation of the relative segments, the person said. Bayer executives also raised risks of tax disadvantages from this choice, the person added.
Bayer has restated during the roadshow that its strategy of developing as a life sciences company remains intact, as both crop protection and pharma fall under this category, the second person emphasised.
The German group said it had been interested in pharma acquisitions, particularly in the US where it is underweight, the first person said. But during the roadshow, executives said there are more competitors with greater scale that can outbid Bayer in this space, the person added.
An acquisition in the crops space faced significantly less competition, the person noted.
Bayer declined to comment