Investors are cautiously optimistic that German pharma and chemicals firm, Bayer AG has the support of U.S. President Donald Trump regarding the company’s planned takeover of Monsanto Co. (NYSE:MONB).
Bayer will report full-year results Wednesday and by all accounts goes into regulatory scrutiny about the Monsanto deal with a thumbs-up from the White House. Analysts and investors are expected to pepper Bayer execs with questions about the takeover as well as potential Trump support.
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There Will Be Scrutiny
Despite President Trump’s apparent blessing, the Bayer-Monsanto deal will face strict scrutiny in both the U.S. and Europe. All this amid planned mergers between Dow Chemical Co. (NYSE:DOWC) and DuPont Co. and between China National Chemical Corp.’s bid to take over Syngenta Co.
Since those M&A deals are farther along than Bayer’s, the outcome could serve as a predictor of how regulators will view the latter merger.
All About Keeping And Adding Jobs
The apparent Trump endorsement was the result of Bayer convincing the president that the company remained committed to retaining Monsanto’s workforce of 9,000 employees and creating an additional 3,000 new jobs in the U.S.
Bayer also said it planned to invest $8 billion in research and development in the U.S. over the next 6 years. Analysts, who have learned how to read President Trump’s reaction and attitude, noted the lack of social media activity from the Oval Office. Union Investment portfolio manager, Markus Manns said, “There were no negative tweets, so that’s a good sign.”
Another Major Cheerleader Emerges
When trying to sell a $66 billion merger, it doesn’t hurt to have the support of the second-richest person on planet Earth. Warren Buffett’s Berkshire Hathaway (NYSE:BRK-BD) said it had purchased 8 million shares in Monsanto after the proposed acquisition was announced this past September.
The stock purchase by Buffett is an indication the Oracle of Omaha is confident the merger will gain approval from regulators. This despite the fact 6 agricultural companies are positioning themselves for mergers, something that had left consumer groups and farmers nervous.
On Buying Monsanto Stock
Although Monsanto is widely viewed as a promising company with a technology edge over competitors that doesn’t necessarily mean taking a position makes sense. Despite the optimism in the U.S. about regulatory approval, such is not the case in Europe.
European regulators are typically stricter and more protectionist than U.S. regulators. In addition, they are dealing with the potential for 3 megamergers in the agricultural space. Regulators have delayed a decision on the Dow/DuPont merger, something some analysts see as a sign there may be troubled waters ahead.
The bottom line is that there is uncertainty all over the place and uncertainty is not an investor’s best friend. That’s why many experts are urging caution.