Monsanto Rejects Bayer Merger Offer, Says It’s Open to Talks
Move by U.S. seed giant puts pressure on German pharmaceutical and chemical conglomerate to sweeten its takeover bid.
Monsanto Co. rejected Bayer AG’s $62 billion takeover offer as too low on Tuesday, but the biotech seed giant said it remained open to further deal talks.
The 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.”
A Bayer spokesperson said on Tuesday that the company would review and consider Monsanto’s response.
Bayer had detailed Monday its plan to buy Monsanto and add the U.S. company’s world-leading franchise in high-yielding crop seeds and genetic engineering to Bayer’s broad portfolio of insecticides and herbicides. A union would transform the agricultural sector, creating the world’s largest seed and crop-chemical supplier, and revamp Bayer itself, making agriculture about half of the company’s overall sales.
Bayer said its bid represented a 37% premium to Monsanto’s closing share price on May 9, a day before Bayer executives formally approached Mr. Grant about a deal.
Some Monsanto investors viewed Bayer’s offer, valuing Monsanto at $122 a share, as only the opening bid. They have said Bayer’s bid didn’t much improve on Monsanto’s late-June share price of about $121, shortly before Monsanto announced a $10 billion stock-repurchase program that signaled to traders that the company thought its shares were a bargain at that price.
Others noted that Swiss pesticide and seed developer Syngenta AG commanded a larger premium in its agreed-upon sale to China National Chemical Corp. in February.
Declining prices for major crops over the past three years have built pressure on the global companies that sell fertilizer, seeds and tractors to farmers, who have seen their incomes dwindle alongside grain prices. The U.S. Department of Agriculture has projected that U.S. farm incomes this year will fall to their lowest level since 2002.
“The critical thing here is that Monsanto’s not in a distressed situation,” said Joel Ray, director of research with Davenport Capital Management LLC, which owns Monsanto shares. “You’re currently at the bottom of the ag cycle, and the net result is that valuations are depressed because of that.”
Monsanto executives have touted the company’s pipeline of new seeds and crop sprays, and so far have maintained a target of doubling 2014 earnings per share by 2019, despite the downturn in the agricultural sector. “There’s no doubt that fiscal year 2016 is challenging, but we will emerge as a leaner, stronger organization,” said Brett Begemann, Monsanto’s president, last week at an investor event.
Jonas Oxgaard, analyst with Sanford Bernstein & Co., wrote in a note to clients that Monsanto executives likely do not want to sell the company at any price.
“Monsanto’s mentality of being the visionary trailblazer, along with its track record proving it can do so successfully, have likely convinced the company that any change of control should be viewed negatively and avoided,” Mr. Oxgaard wrote. He estimated that given Monsanto’s lineup of anticipated new products and its profit projections, the company could reject “any price below $140” as not delivering enough of a premium to sell.
Monsanto shares climbed 2.7% in afternoon trading to $108.90. Bayer shares settled 3.2% lower in European trading.