US Monsanto rejects initial Bayer offer

HOUSTON (ICIS)–US agribusiness giant Monsanto has rejected a $62bn offer by German chemical major Bayer as it feels the proposal is incomplete and financially inadequate – although it was open to continued discussion.

On 23 May, Bayer had offered to acquire the US major known for its agrochemical and seed offerings for approximately $122 per share in an all-cash bid.

If successful, it would establish Bayer as the world’s largest seed supplier and crop biotechnology firm and would be expected to boost Bayer’s annual earnings.

In a statement, Monsanto said that its board unanimously views the Bayer proposal as incomplete and financially inadequate, but stated the company “is open to continued and constructive conversations to assess whether a transaction in the best interest of Monsanto shareowners can be achieved”.

Monsanto CEO Hugh Grant further said the company believes there is substantial benefit of an integrated strategy.

“We have long respected Bayer’s business. However, the current proposal significantly undervalues our company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition,” said Grant.

Monsanto further advised that there is no assurance that any transaction will be entered into or consummated, or on what terms. Moreover, the board has not set a timeline for further discussions.

Before Monsanto’s announcement, Moody’s Investors Service said it may downgrade its ratings on some of Bayer’s notes because of the proposed acquisition.

Moody’s did note some benefits of the proposal, since the companies’ businesses complement each other.

However, Bayer’s financial leverage would increase sharply after it closed on such a deal, Moody’s said. Bayer would likely see a 4.5x ratio in total debt to earnings before interest, tax, depreciation and amortisation (EBITDA).

Moody’s also warned about the execution, reputation and integration risks involved in the proposed deal, given its value and the scale of the operations that Bayer would acquire.

Bayer is also paying quite a premium for Monsanto at the time that its profitability is coming under pressure because of difficult market conditions.

Bayer would likely maintain its investment-grade status, but its ratings could decline by multiple grades if it pursued the original bid, Moody’s said.

Additional reporting by Al Greenwood

(Photo: US Monsanto rejects initial Bayer offer. Source: ddp USA/REX/Shutterstock)