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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.

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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.

Jeffrey Stafford does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.