Handelsblatt Exclusive

Endgame for Bayer's Bidding?

resized Corn harvest countryside source Bayer Monsanto Patrick Pleul DPA 65640897
With Monsanto, Bayer aims to increase its foothold in the farming industry.
  • Why it matters

    Why it matters

    If Bayer and Monsanto cannot agree on a deal and its price, Monsanto’s shares are likely to tank.

  • Facts

    Facts

    • When Bayer holds its annual conference for analysts and investors in September, CEO Werner Baumann is expected to report on significant progress in the Monsanto takeover negotiations.
    • A bid of $130 per Monsanto share is seen as a critical threshold to win over both Monsanto management and shareholders.
    • In a reaction to Bayer’s higher offer of $127.50, Monsanto did not repeat it was “financially inadequate.”
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    Audio

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Bayer again raised its offer for the U.S. seeds maker late on Monday, bidding $127.50 per share, or $65 billion in total, but it is not seen as the blowout bid, people familiar with the matter told Handelsblatt.

The non-executive board of Bayer, Germany’s largest drugs maker and producer of pesticides, will convene on September 14 to discuss the Monsanto bid, the sources said.

Bayer could offer as much as $130 per Monsanto share, or $66.5 billion in total, including debt, they said. That price is seen as crucial to win support from Monsanto’s management and its shareholders, financial sources in the United States told Handelsblatt.

Bayer declined to comment. The company wants to buy the world’s largest seed maker to become a bigger, more diversified player in the agrochemical sector, which is consolidating. U.S. rivals Dow Chemical and DuPont are merging into three new companies, and Chinese chemicals firm ChemChina bid $43 billion in February for Swiss seeds maker Syngenta.

“Both parties need to know where they stand by mid-September. ”

Person familiar with the negotiations

Monsanto, based in St. Louis, has so far rejected Bayer’s bids, saying they were too low. In a reaction to the new bid of $127.50, however, the company did not say it was “financially inadequate,” as it did in July when Bayer had raised the offer for the first time from $122 to $125.

The U.S. company, the world’s largest seeds maker, said in a statement it was “engaged in constructive negotiations with Bayer” and it was evaluating the higher offer as well as “proposals from other parties and other strategic alternatives.”

Pressure is mounting on both Bayer’s chief executive, Werner Baumann, as well as his counterpart at Monsanto, Hugh Grant, to agree to a deal or end talks, since the takeover process has been going on since early May,

Mr. Baumann, 53, has scheduled a meeting with investors and analysts on September 20 in Cologne, not far from Bayer’s headquarters in Leverkussen. Bayer’s former finance head wants to avoid facing investors without being able to report on significant progress in the Monsanto takeover, sources told Handelsblatt.

In St. Louis, Mr. Grant is feeling increased pressure from investors. A number of hedge funds, which have invested in Monsanto, are demanding a decision on the Bayer bid. Monsanto’s shares closed at $107.44 per share on Monday.

“Both parties need to know where they stand by mid-September,” said one source close to the negotiations.

 

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The price of $130 could bring all parties together and be made palatable to Bayer shareholders. “It’s clear to the financial market that the company will up its bid once again,” said an analyst before the new offer of $127.50 was announced. An offer of $130 per share, or $66.5 billion in total, would not shock to the markets, the analyst said.

Bayer has a credit line of more than €70 billion, guaranteed by five banks, to help finance the deal. Nevertheless, financial and company insiders believe an increase to the level between $135 and $140 per share, which some investors in the United States are seeking, is illusory. Mr. Baumann had assured Bayer shareholders of “price discipline” in the takeover negotiations.

To justify a new offer with a higher amount, however, the Bayer chief would have to provide new information about Monsanto. Both companies recently held talks at several levels and exchanged additional information, according to company sources. In the second half of August, Mr. Baumann and Supervisory Board Chairman Werner Wenning traveled to the United States to meet with Monsanto Chief Executive Officer Hugh Grant.

Contrary to recent media reports, however, Bayer has yet to be granted extensive access to Monsanto accounts. Monsanto appears opposed to real due diligence, providing Bayer only with selected views of its accounts.

Almost four months have passed since Bayer made its offer for Monsanto public. Many observers are surprised that the negotiations remain unresolved. It is “astonishing to see how public and prolonged these negotiations have been,” Martin Richenhagen, head of Agco, the world’s largest tractor manufacturer, told Handelsblatt.

Monsanto insiders say shareholders support the management’s strategy not to sell at $125 per share. Yet some investors are beginning to lose patience, especially the hedge funds that recently invested in the U.S. company. “The amount of time this is taking is not normal,” a fund manager told Handelsblatt.

 

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The hedge funds are pushing hard for a decision, upping the pressure on Monsanto chief Grant, an insider said, adding that the deal could come together at a bid of $130 per share.

Funds with a long-term strategy, such as Fidelity and Blackrock, the world’s largest asset manager, have been long-time investors in Monsanto. But hedge funds are playing an increasingly role among shareholders. They include well-known companies like Glenview Capital, managed by Larry Robbins, Elliott Management, managed by Paul Singer, and OZ Management under Daniel Och. A few weeks ago, U.S. investor Daniel Loeb, known for his aggressive attacks on companies, purchased Monsanto shares worth $200 million through his Third Point hedge fund.

Hedge funds are primarily interested in short-term gains. What they find especially appealing about a Bayer bid is that it is a purely cash offer. If the takeover fails, Monsanto management will most certainly feel the heat from investors. According to one hedge fund expert, the price of a Monsanto share could quickly plummet to $90 or even $85.

Short-term focused investors don’t believe Monsanto’s share price will recover quickly if a takeover by Bayer fails. They cite the weak economic climate in agricultural chemistry. Many providers predict low demand among farmers for seed, pesticides and fertilizer until well into next year.

So the game being played by Wall Street sharks could benefit Bayer following another increase in its offer. Mr. Baumann is confident the acquisition will succeed. He is intensively touting his plans within the company, although many Bayer employees are still far from convinced.

Last week, Mr. Baumann hosted an internal roadshow in Monheim near Leverkusen, where the Bayer Crop Science division is headquartered. Some 800 employees from throughout the Bayer group watched presentations about the future of the agricultural business.

 

Bert-Friedrich Fröndhoff leads a team of reporters which covers the chemicals, healthcare and services industries at Handelsblatt. Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. Robert Landgraf is Handelsblatt’s chief correspondent for the financial markets. Thomas Jahn is one of Handelsblatt’s New York correspondents. Gilbert Kreijger, an editor with Handelsblatt Global Edition, contributed to this article. To contact the authors: froendhoff@handelsblatt.comhofmann@handelsblatt.com, landgraf@handelsblatt.com, jahn@handesblatt.com

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