Monsanto money

Bayer gets shot in the arm from Singapore

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The timing couldn't be better. Source: Bloomberg

Shareholders in Bayer have welcomed the news that Singapore’s state investment fund Temasek bought €3 billion ($3.7 billion) worth of shares in the German chemicals group. The investment will likely reduce the looming capital hike needed to fund its mega-acquisition of US seed maker Monsanto.

Bayer’s shares gained 2 percent to €100 on Wednesday. Analysts said the capital requirement could now end up much smaller than the €17 billion Bayer had cited 18 months ago when it agreed to the $62.5 billion deal.

Bayer has already sold €4 billion worth of mandatory convertible notes, leaving a €13 billion shortfall. On top of Temasek’s €3 billion of capital, Bayer will likely receive €8 billion from shareholdings sold as part of cartel negotiations. And it could receive further capital from the sale of its remaining shares in plastics spin-off Covestro.

Temasek’s investments are watched closely in Singapore because the capital income of the €160 billion fund makes up a big slice of the city state’s budget.

Analysts estimate that Bayer may end up issuing just €5 billion worth of new shares. While Bayer wants to keep the capital hike as small as possible to limit the stock dilution, it also wants to keep its investment grade rating and needs a healthy cushion of equity capital for that. In addition, financial sources said it wants to secure enough funds to give it scope for some smaller takeovers in the drugs sector in future.

Bayer plans to launch the capital hike when it is certain cartel authorities will approve the deal. Industry sources said it has reached an agreement in principle with the US Department of Justice and should get the go-ahead once it implements the terms of the deal.

Temasek will receive 31 million Bayer shares for its investment, increasing its shareholding from 0.4 percent to 4 percent. That makes it Bayer’s second-largest shareholder after US asset management firm Blackrock.

Temasek has been on the lookout for investment opportunities in Europe for some time and is interested in both the health and agricultural sectors, making Bayer a good fit. The fund tends to take a back seat and says it doesn’t seek changes in strategy or management in the companies it buys in to.

“This investment is a confirmation of our business strategy,” said Bayer CEO Werner Baumann. “It shows confidence in the planned takeover of Monsanto.”

Temasek is managed by Ho Ching, the wife of Prime Minister Lee Hsien Loong. She appears to have a weakness for Germany — her Facebook profile photo shows her posing with a beer in a Bavarian beer garden. Her advisers also include two German corporate heavyweights — the former CEO of insurer Allianz, Michael Diekmann, and ex-boss of auto components group Bosch, Franz Fehrenbach.

Temasek’s investments are watched closely in Singapore because the capital income of the €160 billion fund makes up a big slice of the city state’s budget. It owns major stakes in large Singaporean companies such as Singapore Airlines, telecoms group Singtel and DBS, Southeast Asia’s largest bank.

Ms. Ho’s marriage to Mr. Lee occasionally sparks mistrust and accusations of nepotism, with that kind of economic and political power concentrated in one family unusual in a democracy. Critics say the couple must find it difficult to avoid conflicts of interest when they sit down to dinner.

Bert-Friedrich Fröndhoff reports on chemicals and health care for Handelsblatt. Robert Landgraf is Handelsblatt’s chief financial correspondent. To contact the authors: frondhoff@handelsblatt.com and landgraf@handelsblatt.com

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