TheChek News Flow

Monsanto opens door to talks on Bayer bid

Monsanto is open to discussions on a deal with Germany’s Bayer, the US seeds giant said for the first time on Tuesday, even as it rejected a record-breaking $62bn bid from the aspirin-to-weed-killer conglomerate as “incomplete and financially inadequate”.

Hugh Grant, Monsanto’s chairman and chief executive, said in a statement that the US company believed in the “substantial benefits” of a combination that would create a group spanning seeds to crop sprays.

Monsanto’s price-focused rejection and willingness to engage with Bayer is the strongest indication to date that the US company is open to a deal on the right terms. This marks a significant shift in its thinking: until March it appeared completely opposed to being taken over by the German group.

Mr Grant argued, however, that Bayer’s $122 a share proposal “significantly undervalues our company” and did not adequately address some of the “potential financing and regulatory execution risks related to the acquisition”.

Monsanto shares were little changed by the statement, trading up 2.3 per cent to $108.60 at lunchtime in New York. Investors still see substantial hurdles to getting a deal agreed and cleared by antitrust regulators, and Mr Grant said Bayer had yet to fully address “potential financing and regulatory execution risks”.

Bayer will now be under pressure to sweeten its offer, a move which risks further antagonising shareholders concerned that a Monsanto takeover will strain Bayer’s balance sheet.

In explaining its move for Monsanto, Bayer said it risked missing out on the final wave of consolidation in the global agrochemicals sector if the deal failed.

Werner Baumann, Bayer’s new chief executive, said the business of supplying seeds and crop chemicals to farmers was already dominated by six players who owned nearly two-thirds of the market. Consolidation would, he said, lead to even bigger and more powerful companies.

“The ones that are left have to decide now what they want to be in this industry . . . because this [consolidation] is going with its own dynamic,” he told the Financial Times during a visit to London. “All the major players have to define their position in this last round of consolidation.”

The stopover was part of a multi-city charm offensive by Bayer to win support from shareholders as it pursues a deal that now looks set to cost it more than $62bn including debt. The German company’s share price has fallen back by more than 10 per cent over the last week as investors balk at the potential cost of a deal.

While Monsanto is pushing for a higher offer, Mr Baumann said that he has been in “constant dialogue” with Mr Grant since sending an offer letter on May 10.

He said: “It’s actually very open and easy to get each other on the phone . . . I can only speak for myself, but you would sense if there was tension.”

Mr Baumann met Mr Grant and Brett Begemann, Monsanto’s president, in St Louis in mid-April. He said the two executive teams were “fully aligned” on how to address changes in the industry.

The agribusiness industry has been swept by takeover fever since Monsanto, a leader in genetically modified seeds, failed to buy its Swiss crop chemicals rival Syngenta. The move set off a chain reaction — ChemChina announced a $43bn deal for Syngenta while Dow Chemical and DuPont have agreed a $130bn mega merger.

Bayer has faced sharp criticism by some investors over its move on Monsanto, amid concerns over the amount of debt it will have to raise to finance the deal. One London-based investor said: “It is a compelling strategic fit, but when it comes to capital allocation I think management have lost their minds.”

This person said: “I don’t see the hurry. The last Monsanto results were hardly knockout. There is plenty of time for the corporate hubris [from the Syngenta/Dow/DuPont deals] to wind down.”

Mr Baumann said many of his shareholders saw the strategic logic, but acknowledged that he had seen pushback from investors. Some shareholders focused on the healthcare sector have told the company that they did not want to be invested in a business that is cyclical like agriculture, he added.

He said that in consumer healthcare, Bayer was in the still in the process of digesting some of the acquisitions it had made over the past few years. In pharmaceuticals, he said that the patent cliff for the company’s two most important drugs was still several years away.

“What is important is that our pharma . . . has access to operating expenses, sufficient R&D, sufficient marketing and development to drive the business,” he said.