The jury is out – way out – on whether German pharmaceutical and agricultural giant, Bayer, will succeed in its attempt to take over U.S. based Monsanto Co. (NYSE:MONB). If successful, the merger would create the world’s largest seed and farm chemical company.
The offer, $62 billion in cash or $122 per share, has angered some Bayer stockholders and given rise to critics who say the deal will never pass regulatory muster.
Market Reaction So Far
The mere possibility of a 37% premium on Monsanto shares drove that company’s stock 4.3% higher by the closing bell Monday. Meanwhile Bayer’s stock declined by 4.5% or $4.54 per share over the same period.
Shares in Bayer had already fallen 14% on rumors of the bid last week, so the latest decline only added to downward pressure on the stock.
Mergers and acquisitions are the name of the game in agrochemicals as grain prices have dropped in recent weeks and months. Put simply, when farmers don’t make money, they can’t buy seeds, fertilizer and other chemicals.
Because of the culture, ChemChina will take over Switzerland's Syngenta AG for $43 billion as both Dow Chemical (NYSE:DOWC) and DuPont Co. (NYSE:DDC) form a new company based on a $130 billion investment. Meanwhile, BASF, another German company, has also been trying to forge a deal with Monsanto.
Corn Bets On The Rise
Meanwhile, the Commodity Futures Trading Commission said in a report last week that money managers added net-long positions in corn while lowering bids on soy bean prices. This move was the first of its kind in two months.
The importance of this news is that a net-long position is an indication traders expect higher prices moving forward – something that could bode well for Bayer if the deal were to be accepted and pass regulatory scrutiny.
Prospects Of A Bidding War
Although some sources have indicated there is little likelihood Bayer competitor, BASF will get into a bidding war with Bayer, analysts speculate the price paid may still go up in order to convince Monsanto’s shareholders to sign on to the deal.
Still others suggest the offer is at the upper limits of anything that makes sense for Bayer, giving the company very little, if any, wiggle room when it comes to negotiations.
Cramer Is Cautious
TheStreet’s, Jim Cramer, meanwhile said the problem is regulatory, pointing to a recent TheStreet series showing a “pattern of increased regulatory actions challenging mergers” going back to when Ronald Reagan was President.
Cramer believes government regulators would not allow the Bayer/Monsanto merger to create a monopoly in the area of crop protection. According to Cramer, “No way the farmers will stand for it."
He added, "This is a Justice Department that's very inclined to veto whatever is most talked about."
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Five big banks, Morgan Stanley (NYSE:MSD), Ducera Partners, Credit Suisse Group AG (NYSE:CSC), Bank of America Merrill Lynch, and Rothschild, all of whom are advising on the Bayer/Monsanto deal could haul in nearly $200 million in fees as a result of their role.
Breaking it down, Morgan Stanley and Ducera, who are advising Monsanto, expect to split up to $110 million according to Freeman & Co. Credit Suisse, Bank of America, and Rothschild are advising Bayer, and expected to divide $70 million to $80 million in advisory fees.