Monsanto in Talks for BASF Ag Unit, Rejects Raised Bayer Offer

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 days have brought news that the company is open to a deal, including acquisition by other companies or the acquisition of other companies.

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.

Word 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.

Indeed, Bayer AG announced on July 14 that it had 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 had 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 has been viewed with a measure of skepticism, again, with good cause.

"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.

After agreeing to review Bayer’s latest bid, Bloomberg reports that Monsanto has since refused the offer, stating that it was “financially inadequate,” but added that it remained open to ongoing “constructive conversations” with Bayer.

And 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.