Analysts expect improved Monsanto offer – Bayer shareholders might not be too happy about it
Analysts expect Bayer to make an improved offer for Monsanto. But shareholders of the German company might not be too happy about it.
US seed company Monsanto rejected Bayer's $62bn (£42bn), or $122 per share, offer on Tuesday, describing it as “incomplete and financially inadequate”. Monsanto did, however, say it was “open to continued and constructive conversations”.
Bayer responded by saying it was “confident that we can address any potential financing or regulatory matters”, adding: “Bayer remains committed to working together to complete this mutually compelling transaction.”
Read more: Monsanto rejects Bayer's "financially inadequate" $62bn takeover offer
The analysts
“Given Bayer’s ambitions to become a dominant player across the US, European and Asian agrochemical markets, we can expect Bayer to improve its bid, though marginally,” Michael Jewell, healthcare partner at Cavendish Corporate Finance, told CityAM
“Monsanto’s interest for a merger is strong, however its expectations for what it considers a financially adequate deal, beyond the original $122 a share proposal might be much higher than what Bayer is willing to pay. Bringing its original offer closer to Monsanto’s expectations will be challenging and may push Bayer into serious financial strain, ultimately undermining the company’s value.”
On the potential shareholder reaction to an improved offer, he added: “We can expect investors having bet on Bayer’s healthcare franchise to oppose any significant increase in the bid offer.”
Kirsty Wilson, a senior analyst at MergerMarket, told CityAM: “Monsanto has Bayer backed into a corner. Bayer’s reactionary strategy to catch up to market consolidation in its agrichemicals division has caught shareholders off guard. Some of them will need a lot more persuasion before Monstanto gets the squeezed offer price it hopes for.”
Read more: Bayer's Monsanto bid: Are European firms about to take over the world?
The shareholders
Andrea Williams, a senior fund manager at Bayer shareholder Royal London Asset Management, told CityAM she would expect the firm to improve its offer from $122 per share to $135 per share.
She said that following Monsanto’s rejection, it looks “unlikely the deal will succeed, despite being $13 a share higher than Monsanto’s closing price on Tuesday”.
Williams said it is possible that another company could come in with a bid or that Monsanto could make a counter-bid for part of Bayer.
But she added: “The most likely scenario is Bayer will acquire Monsanto, but at a higher price. As an investor we would then have to evaluate the price they are paying and what parts of Monsanto they will ultimately end up owning, given that the regulator may force them to divest certain assets.”
Read more: Seeds of regulatory doubt over Bayer's proposed $62bn takeover on Monsanto
Markus Manns, a portfolio manager at Union Investment, another Bayer shareholder, has spoken out against an improved offer.
When the $62bn offer was made, he said: “A takeover of Monsanto would make sense for Bayer from a strategic point of view, but not at any cost. The announced price is at the upper limit.
“Should the price level increase further, what can be expected, then the takeover will become less and less attractive.”
On the news of Monsanto’s rejection, he said: "The refusal of Bayer’s offer has not been a surprise. But as further talks are going to take place, the positive wording of the refusal is an indication that Monsanto wants to increase the price."