July 17, 2016

Consolidation efforts continue apace as the largest global players in the biotech space vie for market share and growth opportunities within the $100 billion global agriculture seed and chemical market in the face of a sustained decline in commodity prices. Monsanto is still considered the top play and the past four days have brought news that the company may be choosing between a takeover by Bayer and an acquisition of Bayer rival, BASF.

Bloomberg reports that after rejecting Bayer’s $62 million takeover bid in May, Monsanto has re-entered talks on various fronts including talks for the acquisition of BASF’s ag unit, according to unnamed sources.

Rumor of a BASF deal is the latest rumbling coming from the world’s top six biotech companies as they all negotiate for possible mergers that can bring growth in a challenging market. Already Dow Chemical and DuPont have announced a $130 billion, all stock, 50/50 mega-merger, while the $43 billion Syngenta takeover by China National Chemical Corp. is under regulatory diligence.

Although negotiations are still in early stages, it is believed that BASF would receive newly issued Monsanto shares through any eventual deal. Some analysts, however, have been calling the BASF talks a red herring, designed to prompt Bayer to sweeten its offer, as talks between Monsanto and that company are ongoing as well.

And they might have been proven right.

Bayer AG announced on July 14 that it has raised its offer for Monsanto by $3 per share over its previously rejected bid, to $125 per share and a new total bid of $65 billion. The company has also offered Monsanto a $1.5 billion reverse antitrust breakup fee, indicating its confidence in a successful deal.

“We are convinced that this transaction is the best opportunity available to provide Monsanto shareholders with highly attractive, immediate and certain value. Bayer is fully committed to pursuing this transaction,” said Werner Baumann, CEO of Bayer AG in a company statement.

If successful, 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 – a fact that is causing consternation with some of the group’s investors who have traditionally viewed the company as a health care entity.

However, even this enhanced bid is being viewed with a measure of skepticism.

“We don’t think the higher offer will be enough to entice Monsanto’s board,” stated Morningstar analysts in a note. “We estimate Monsanto would be worth $130 per share in Bayer’s hands, which includes our annual run-rate cost-synergy target of $1 billion,” reports AgroPages.

Monsanto has said it will review Bayer’s latest offer in consultation with its advisors. However, the company has yet to issue Bayer a confidentiality agreement that would grant Bayer access to its books and has declined to comment any further.

Given the fact that Monsanto’s board is split between the merits of forging a deal with either BASF or Bayer, while other executives remain in favor of staying independent, only time will tell which way Monsanto may jump.

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Lynda Kiernan