Bayer-Monsanto Deal

Cheap Money, Risky Takeovers

The logo of Bayer AG is pictured at the Bayer Healthcare subgroup production plant in Wuppertal February 24, 2014. REUTERS/Ina Fassbender/File Photo
Bayer's woes could be down to the ECB's policies.
  • Why it matters

    Why it matters

    Bayer’s expensive takeover bid, lampooned by investors, is based on a share price that has been indirectly pumped up by the low interest-rate policies of central banks, the author argues.

  • Facts

    Facts

    • Bayer’s €55-billion bid for Monsanto (€62 billion including debt) is 15.8 times the company’s EBITDA and includes a 36-percent markup over the average share price in the three months prior to announcement of the deal.
    • The European Central Bank in March announced it would start buying corporate bonds to help boost the euro-zone economy.
    • Low bond yields enable Bayer to finance its Monsanto bid. Bayer could issue €20-billion worth of bonds to partially finance the deal and pay €500 million or less in interest.
  • Audio

    Audio

  • Pdf

Market are often brutally simple. The recent dramatic decline in the price of Bayer’s shares shows exactly what investors think of the company’s planned acquisition of U.S. seed producer Monsanto – namely nothing.

After its takeover bid for the controversial producer of genetically-modified plants, the German pharmaceutical giant lost almost €10 billion ($11 billion) in market value.

The investors’ harsh verdict was not a sign of panic but of careful consideration. Experience has shown that the majority of takeovers go wrong, especially when they involve German companies seeking to acquire U.S. competitors.

The data shows that, prior to a mega deal, most companies tend to achieve higher profit increases, are more profitable and provide their shareholders with stronger price gains than after completing a takeover. Besides, the cultural differences are often so great that there is simply no chemistry between management and labor.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.