Bidder's Remorse

Shareholder Unrest Over Monsanto Bid

A worker at Monsanto's seed farm in the Netherlands. Source: Bloomberg
A worker at Monsanto's seed farm in the Netherlands.
  • Why it matters

    Why it matters

    • Bayer’s current $58-billion offer to acquire Monsanto would be the largest takeover ever by a German company. But at the moment, Bayer shareholders have no say in whether such a monumental deal can go ahead.
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  • Facts

    Facts

    • Last week, the U.S. seed company Monsanto rejected Bayer’s offer of $125 per share, but further talks are expected.
    • Investors are among those calling for Bayer shareholders to be given a say on the deal.
    • Bayer chief executive Werner Baumann doesn’t consider a vote by Bayer shareholders to be necessary.
    •  
  • Audio

    Audio

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Some Bayer investors are calling on the German chemical giant’s supervisory board to hold a shareholders’ vote on the proposed takeover of U.S. seed company Monsanto.

Monsanto last week rejected an offer by Bayer of $125 per share, up from an earlier offer of $122 per share. The $58 billion deal would have been the largest takeover ever by a German company. More negotiations are expected, and Monsanto is highly likely to seek a higher offer before any deal is done.

The deal was approved by Bayer’s supervisory board, a beefed up non-executive board that must sign off on all major decisions, but several investors say they should have more of a say in the proposed takeover.

Asim Rahman, fund manager at Henderson Global Investors wrote to the chairman of Bayer’s supervisory board, calling for an extraordinary shareholders’ meeting to allow them to vote on the Monsanto purchase. Renowned German corporate-governance expert Christian Strenger also advised Bayer to follow that course of action.

Bayer chief executive Werner Baumann has already made it clear doesn’t consider a vote by shareholders to be necessary. In late May, he told analysts the proposed deal required no further approval from Bayer’s side.

Many agree with him. Ralph Wollburg, a partner and co-head of global M&A at the Linklaters law firm told Handelsblatt it was totally unnecessarily for Bayer to hold an extraordinary meeting to consult its shareholders.

“The members of the supervisory board would certainly feel more comfortable if they saw the view of stockholders confirmed through voting at an extraordinary meeting. ”

Christian Strenger, Expert, corporate governance

“German stock corporation law states clearly that the management board is responsible for conducting business,” he said.

Mr. Wollburg said the principle also applies to large deals, particularly the case when companies establish a clause that says one of the objects of a company is the purchase of stakes in other firms. Such formulations are standard in the articles of almost all companies, including Bayer. He points out that any meeting would drag out talks even further.

“The ensuing state of limbo is detrimental to transaction security in every sense,” Mr. Wollburg said. “Neither the buyer nor the seller can afford that uncertainty.” Bayer’s management board would become subject to risks “that it actually can’t bear and be answerable for,” he said.

But some Bayer shareholders feel that even though the company cannot be forced by law to hold an extraordinary shareholders’ meeting  it should nonetheless listen to their concerns.

 

26 p22 Bayer Share Structure-01

 

Mr. Rahman considers a meeting to be necessary because he fears a permanent loss of corporate value.

Mr. Strenger meanwhile believes that the  financial, regulatory and environmentally relevant breadth of Bayer’s plans means the  company’s management and supervisory boards should make sure a majority of shareholders are behind the proposed megadeal.

He argues that management and supervisory boards must develop a comprehensive picture of the potential effects and risks of an acquisition. He believes that in view of the massive criticism from investors, Bayer’s supervisory board should initiate a renewed, intensive examination of its decision.

“The members of the supervisory board would certainly feel more comfortable if they saw the view of shareholders confirmed through voting at an extraordinary meeting,” Mr. Strenger said.

But Bayer appears unlikely to take this step voluntarily because of the possibility of legal challenges. Each individual shareholder can seek legal redress for any decision made at a shareholders’ meeting, raising the possibility of long drawn out court proceedings.

For some overseas investors, the situation in Germany is hard to fathom. If Bayer were a British company, the firm would have to seek approval for such an acquisition from its shareholders at a general meeting. The crucial difference is that the law in English-language countries doesn’t allow for subsequent legal challenges.

In corporate lawyer Mr. Wollburg’s view, the fact that in past years German lawmakers partly limited the postponing effect of legal challenges doesn’t resolve the fundamental problem.

“There have been improvements regarding specific individual transactions such as mergers. But that’s far from covering all decisions made at shareholders’ meetings,” he said.

 

Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. Bert-Friedrich Fröndhoff leads a team of Handelsblatt reporters covering the chemicals, healthcare and services industries. To contact the authors: hofmann@handelsblatt.com, froendhoff@handelsblatt.com

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