Bayer Finally Buys Monsanto, Inflation Vanishes

Wednesday, September 14, 2016

It was a long time coming, but St. Louis-based agribusiness giant Monsanto (NYSE:MON) has agreed to be purchased by German Big Pharma staple Bayer (OTC:BAYRY) for $66 billion in cash. This amounts to $128 per share, a 21% premium from Monsanto’s closing price Tuesday. Bayer has been pursuing the seed and pesticide maker since last spring at least, and this is the biggest pure acquisition of 2016 so far.

Combining a pharmaceuticals manufacturer with a pesticide and food engineering major does have synergies on a very large scale — Monsanto’s technologies, including GMOs, which augment the chemical makeup of food products — appear to be directly relatable to biopharma pursuits of the drug maker, or so it would stand to reason. Bayer expects the acquisition to add to core profits in the first year after the deal closes.

Allergan (NYSE:AGN) has also made an acquisition, announced this morning, for small-cap dermatology-focused Vitae Pharma (NASDAQ:VTAE) for $639 million. Allergan looks toward Vitae’s promising psoriasis treatment adding to its stable of treatments for auto-immune deficiencies. While this may seem like a minor deal at first, if you’re a holder of Vitae shares your day started off great — the buyout at $21 per share marks a jump of 157% overnight.

Inflation? What Inflation?

Import and Export Prices both sank into negative territory in August. Import prices reached -0.2%, a notch lower than expected and down from July’s (unchanged) +0.1%. Year over year, Import prices are down 2.2%, exactly as expected. Exports fell to -0.8% for August, and are at -2.4% year over year.

Much of this has to do with beleaguered oil prices, but not all of it. The non-petroleum read is still 0.9%, with capital goods unchanged. Perhaps this is the work of a stronger dollar?

In any case, we are not seeing inflation rear up anywhere with numbers like these, and this plays toward dovish sentiments that counter the firming of the rate-hike chorus among Fed Reserve presidents. Thus, if these numbers are indicative of a lesser likelihood of an interest rate hike by the Fed next week, we expect to see a near-term market rally.

To this end, we are currently seeing S&P 500 futures up 4.25 points, the dow up 28 and the Nasdaq at 15.5. These numbers are all higher than prior to the Import and Export numbers.

Mark Vickery
Senior Editor

ALLERGAN PLC (AGN): Free Stock Analysis Report

BAYER A G -ADR (BAYRY): Free Stock Analysis Report

MONSANTO CO-NEW (MON): Free Stock Analysis Report

VITAE PHARM INC (VTAE): Free Stock Analysis Report

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