Monsanto-Bayer Deal Should Close
Regulatory concerns aren't much of a hurdle because of the lack of broad overlap between the portfolios of these agriculture companies.
We thought it would take a minimum of $130 per share to entice Monsanto's (MON) board. We were two dollars short. On Sept. 14, Monsanto accepted Bayer's (BAYRY) acquisition offer of $128 per share, including a breakup fee of $2 billion (4% of Monsanto's market cap). The acceptance comes after months of back-and-forth between the two companies, beginning with Bayer's initial offer of $122 per share in June.
The purchase price values Monsanto 6.7% above our stand-alone fair value estimate of $120 per share. Our Bayer stand-alone fair value estimate is EUR 126 per share, versus a trading price of almost EUR 98 per share. We think Monsanto would be worth about $130 per share to Bayer as a result of our almost $1 billion annual synergy estimate (versus management's estimate of $1.5 billion). As such, we don't expect a dramatic change to our current Bayer fair value estimate if a deal is closed at $128. Bayer expects to fund the the $66 billion (including net debt) all-cash deal with $19 billion of equity and the rest in debt.
With terms agreed upon, the market remains skeptical that a deal will actually close. Pre-market open, Monsanto shares traded near $106 per share, a more than 15% discount to the purchase price. We think this skepticism is primarily related to antitrust concerns. We see regulatory concerns as less of a hurdle because of the lack of broad overlap between the portfolios of Monsanto and Bayer. Monsanto's ag business is tilted toward seeds, and Bayer's is tilted toward crop chemicals.
We do think Bayer's seed business, which includes soybeans, cotton, and vegetables, will be sold as part of a deal. But we don't think regulators would get too hung up on the overlap in herbicides, where Monsanto's only position is in commoditized glyphosate, which has suffered recently from oversupply out of China. As such, we plan to move our Monsanto fair value estimate close to $128 per share.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Jeffrey Stafford does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.