Monsanto described Bayer’s takeover offer of $55 billion as “financially inadequate,” and not enough to get a deal done.
Investors were initially dismayed with Monsanto, who appeared in talks to buy the agrochemicals unit from BASF SE (ADR) (OTCMKTS:BASFY), a German chemicals-maker, instead of taking Bayer’s increased bid of $125 per share (Monsanto previously rejected Bayer’s bid for $122 per share).
On the face of it, sure, Bayer’s $125 a share doesn’t sound too bad — it represents a 17% premium to where MON shares are trading now (around $106.90). That offer, however, translates into about $54.7 billion, which is less than Monsanto’s enterprise value of $55.95 billion.
Monsanto Not Out of the Weeds
Although Bayer promised a cool $1.5 billion should regulators kill the deal, Monsanto’s board unanimously rejected the bid.
Yet, Monsanto has a litany of problems, and a buyer could’ve been a best-case scenario for MON stock holders.
The embattled seed-supplier remains wrapped in conflict with farmers, governments and some huge commodity-trading companies; and declining crop prices recently led Monsanto to guide toward the lower end of its full-year outlook.
While MON stock prospered this year — rising 8.5% to the 5.8% put up by the S&P 500 Index — one can’t help but wonder if those gains aren’t the result of buyout hopes, leaving investors testing the sensitivity of a trapdoor as the market could soon price in Monsanto’s earnings drought.
Monsanto, for its part, remains open to “constructive conversations” with Bayer and others. But a deal is unlikely to get done for anything less than $135 to $140 per share of MON stock. Bayer, according to Bloomberg, would be able to pay as much as $158 a share should it choose to raise its bid for a second time.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.