Germany’s Bayer (DE:BAYGN) and Monsanto (NYSE:MON) are set to announce a successful tie-up deal on Wednesday. The merger would value the US seed-maker at nearly $130 per share, or more than $65 billion in total including debt, according to sources.
Bayer’s administrative board is scheduled to meet Wednesday afternoon, where it is predicted to seal the company’s latest takeover proposal.
During a meeting late Tuesday, Monsanto’s board accepted the German company’s latest bid, which is higher than its recent offer of $127.50 per share last week. Moreover, Bayer significantly boosted its break-fee from a previous amount of $1.5 billion.
The expected merger would come about four months after Bayer Chief Executive Werner Baumann made his initial bid for Monsanto. The pharmaceutical company originally offered to acquire Monsanto for $122 per share back in May.
Since then Bayer increased its offer twice, including last week’s revised proposal. However, it failed to provide Monsanto with an adequately high figure.
Baumann spent several hours over the summer trying to persuade doubtful investors on both parties that a merger would create value for the two companies. Most of his own shareholders questioned whether Bayer could manage such an acquisition with its high debt. The company’s net debt amounted to 17.45 billion euros last year, more than double the 7 billion euro figure in 2011.
Several investors had wanted the company to continue to extend its productive health care operations.
The agreement with Monsanto would considerably alter Bayer’s portfolio, drifting it away from its primary health care operations. The company’s crop-science business would include nearly half of overall sales, compared with 30 percent last year. The health care segment, such as pharmaceuticals business, would comprise roughly the other half of group sales.
Bayer’s agrochemical sector posted a revenue of 10.4 billion euros in 2015, out of total group sales of 46.3 billion. On the other hand, Monsanto reported total sales of $15 billion in the previous year.
Market analysts widely anticipate Bayer and Monsanto to finalize a deal, but some still doubt the benefits of the tie-up and whether it would overcome potential regulatory challenges.
“We see the Bayer-Monsanto deal as close to an end,” analysts at Germany’s DZ Bank wrote in a note Wednesday morning. “We don't like the transaction because we think that Bayer is overpaying significantly,” an analyst stated.
Benefits Of Bayer-Monsanto Merger
Market players and analysts have noted that Bayer and Monsanto’s agricultural enterprises are complementary. Bayer performs much stronger in crop chemicals, while Monsanto is a global leader in seeds.
The deal, which would establish the world’s biggest agrochemicals businesses, is the latest in the briskly consolidating agricultural sector.
Other seed developers such as Syngenta AG (NYSE:SYT), Dow Chemical (NYSE:DOW) and DuPont (NYSE:DD) have all closed their own deals in the previous months. Agrochemical groups have been under pressure to reduce costs and build scale as farmers struggle with a three-year decline in crop prices that has pushed seed manufacturers, crop chemicals, fertilizers and tractors to curb prices and lay off employees.