Bayer To Boost Agriculture Suite With $66B Monsanto Buyout

After months of negotiations, Germany-based chemical and pharmaceutical giant Bayer AG (DE:BAYGN) (OTC:BAYRY) has finally signed a definitive merger agreement to acquire Monsanto Company (NYSE:MON) for $128 a share in an all-cash transaction. This amounts to an aggregate value of $66 billion, representing a 44% premium to Monsanto shareholders, based on its closing share price on May 9, 2016.

Note that Bayer has been eyeing to acquire the agriculture behemoth since May 2016. The final deal is worth $4 billion more than its initial offer of $62 billion or $122 per share.

The latest deal, however, includes a break-fee worth $2 billion which Bayer will pay to Monsanto, if it fails to get a regulatory clearance. The transaction is slated to close by the end of 2017. Bayer intends to finance the transaction with a combination of debt and equity.

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How will the Transaction Benefit?

The combined entity will leverage Monsanto’s expertise in the Seeds & Traits and Climate Corporation platform and Bayer’s broad Crop Protection product line across a comprehensive range of indications and crops in all key territories. The joint business will bring together the two companies’ leading innovation capabilities as well as their research and development (R&D) technology platforms, with an annual pro-forma R&D budget of approximately €2.5 billion.

The combined business is expected to provide accretion to Bayer’s core earnings from the first full year of the closing of the transaction, followed by double-digit percentage growth.

Bayer also expects annual earnings contributions of around $1.5 billion from synergies after three years of closing the transaction, as well as additional future benefits from integrated offerings.

We expect investor focus to remain on further updates on the Bayer/Monsanto merger, going ahead.

Currently, both Bayer and Monsanto carry a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the health care sector are Anika Therapeutics, Inc. (NASDAQ:ANIK) and ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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