Back to top

Image: Bigstock

Monsanto and Bayer Agree on $66 Billion All-Cash Deal

Read MoreHide Full Article

The much awaited biggest all-cash deal has eventually been signed, after Monsanto Company accepted Bayer AG’s (BAYRY - Free Report) buyout offer worth $66 billion, inclusive of debt. The U.S. seed behemoth asserted that Bayer’s grouping would unlock the next tranche of opportunities and growth for its business.  

Bayer’s latest $128 per share offer was accepted as a signature deal after years of consolidation contest in the global seeds, traits and agricultural chemical industry.

Sluggish global economy, lower investments in agricultural inputs, volatile weather patterns and sturdy competition in grain exports have been putting pressure on Monsanto. Moreover, on Jun 29, 2016, the company reported lackluster third-quarter fiscal 2016 earnings owing to several turbulences like litigation & environmental issues, tax-associated problems in Argentina, the nonoccurrence of the Scotts Miracle-Gro Company’s deal and increasing regulation in certain niche markets.

Hence, declining Bayer’s offer would have put Monsanto in a lesser competitive position within the industry, where rivals such as Syngenta AG (SYT - Free Report) , The Dow Chemical Company (DOW - Free Report) , E. I. du Pont de Nemours and Company (DD - Free Report) and ChemChina, all are heading toward collaboration.

The German drug and crop chemical maker Bayer’s fourth-time revised bid is at a premium of 19.9% over the closing share price of Monsanto on Sep 14. Monsanto’s stock gained 0.6% to $106.76 as of Sep 14, 2016 on grounds of the aforesaid deal broadcast.

Let’s see if the Zacks Rank #3 (Hold) stock benefits further in the near term on the back of higher investor confidence. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Both companies look forward to successfully closing the transaction by 2017. However, we anticipate them to face regulatory hurdles from the antitrust authorities. Since, alliances between these major companies would give rise to just a few global players within the industry, the regulatory authorities would examine the Monsanto-Bayer deal in details, before giving any green signal.

However, Bayer has pledged to reimburse a higher break-up fee of $2 billion to Monsanto, in case there is a deal blockage due to regulatory turmoil.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>     

Published in