Eoin Treacy's view -
While the combination of Bayer and Monsanto makes sense operationally, it’s not clear yet how regulators will view this or other deals in the industry, said James Govan, a fund manager at Baring Investment Services Ltd. in London, who manages about 60 million pounds ($87 million) of agricultural and food-related stocks, including Monsanto shares. If they focus on the size of overall market share, as opposed to individual product categories, it may be harder for the deals to go through, he said in an interview Monday.
St. Louis-based Monsanto has yet to respond to Bayer’s offer. It’s not unprecedented for a target company to trade at less than an offer before the deal is later completed successfully. The current premium of Bayer’s offer to Monsanto’s share price is the 21st-biggest among 143 live deals tracked by Bloomberg.
Bayer’s offer is probably less than Monsanto’s valuation of itself, as the U.S. company expects significant growth between 2020 and 2025, said Jonas Oxgaard, an analyst with Sanford C.Bernstein & Co. in New York. Oxgaard said he expects an offer of $135 to be more palatable. Even then, he said, Monsanto would be reluctant to agree on a deal.
“Monsanto doesn’t want to be bought,” Oxgaard said by phone. “They have a history of being a standalone company, very focused long term, and they consider themselves the best company in the industry. It rankles a bit to be the best and then be acquired.”
Bayer and Monsanto represent two of the world’s largest seed producers and due to regulatory headwinds offer two very different ways of achieving more productive and bug or drought resistant plant strains. Monsanto is the world leader in genetically modified products while Bayer relies on bombarding seeds with radiation to induce mutation. A tie-up between the European and US leaders in seed Technology represents a powerful proposition but it is unlikely to come cheap and regulators will undoubtedly have caveats.
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