September 6, 2016

Bayer has raised its bid for Monsanto from $125 per share to $127.50 per share on the condition that a negotiated transaction is secured. The increase will bring its total offer to more than $65 billion – indicating a two percent increase over Bayer’s previously standing bid. In May of this year, Bayer forwarded an offer of $122 per share, or $62 billion for Monsanto, followed by a July offer of $125 per share, or $65 billion – both of which were rejected.

Reuters reports that sources have revealed that Monsanto has also agreed to open its books to Bayer for the purpose of conducting due diligence as negotiations that began in May continue.

“Both sides are gradually nearing consensus,” sources told Reuters, while CNBC reports that a deal could be concluded within a week or two. However, the two companies have yet to agree on possible divestitures if they are required by antitrust regulators.

Monsanto has stated that it considers the negotiations to be “constructive,” adding that “Monsanto is continuing these conversations as it evaluates this proposal, as well as proposals from other parties and other strategic alternatives to enable its Board of Directors to determine if a transaction in the best interests of its shareowners can be realized.”

If achieved, the deal would give Bayer a major standing in the rapidly consolidating global agribusiness and ag chem sector as rivals work to achieve their own mergers. In July of this year, Dow and DuPont announced shareholder approval for the formation of DowDuPont – a $130 billion all stock, 50/50 deal originally announced in December 2015, while ChemChina recently received approval from the Committee on Foreign Investment in the United States (CFIUS) for its $43 billion takeover of Syngenta.

If successful, however, a deal between Bayer and Monsanto would have a significant effect on Bayer’s structure, making about half of the group’s sales originate from agriculture instead of health care – a fact that is causing consternation with some of the group’s investors who have traditionally viewed the company as a pharmaceutical entity.

“We knew that Bayer would have to bid higher and this offer is probably getting closer to succeeding, but it doesn’t change our view that it presents significant risks to shareholders,” Greg Herbert, co-manager of the Jupiter Global Equity Income Fund told Reuters.

“The company will be left with a highly geared balance sheet and the management effort to integrate the two businesses could easily lead to the larger pharmaceutical business being neglected.”

Monsanto meanwhile, is evaluating the offer in light of a recent forecast by the U.S. Department of Agriculture (USDA) that U.S. farm incomes will fall to their lowest since 2009 as the farming economy continues its downward slide. The trajectory will likely increase pressure on the ag inputs industry after the company has already had to reduce its global team by 16 percent, according to the Wall Street Journal. But at the same time, some Monsanto shareholders have expressed the desire to continue negotiations for a higher bid due to the future potential inherent in the company’s current investments.

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Lynda Kiernan