Can Bayer Swallow Monsanto with Bid? [UPDATED]

 

Bayer’s (BAYZF) intended acquisition of Monsanto (MON) may be a bit too much to handle. The initial announcement of an unsolicited offer of $45 billion for Monsanto sent Bayer’s shares tumbling down 7.8 percent and trading at $99.95 per share last Thursday. Monsanto was up 3.5 percent at $100.55 a share.

Bayer finished the week down 6.9 percent trading at $100.12 per share and Monsanto was up 3.3 percent at $101.52 per share.

Bayer sweetened the deal over the weekend bumping up the offer to $62 billion and raising even more questions about the affordability of the purchase.

The offer may be a cash and stock deal because Bayer does not have enough cash. The appeal is all about the different markets that they serve. Bayer is predominantly in pharmaceuticals but also known for its cotton, rice and vegetable seeds. Monsanto is the seed king with canola, corn, soybeans and wheat among others. There is some overlap with cotton and vegetable seeds but the commonality is disappointing results.

Monsanto whose enterprise value is at $52.3 billion is around half the size of Bayer’s $102.6 billion.

The balance sheet analysis indicates that Bayer’s liquid assets and cash on hand of $30.4 billion wouldn’t be enough to pay cash and would have to raise a considerable amount to afford a purchase price more likely to be accepted than any initial offer made to Monsanto.

Currently, Bayer represents 1.5 percent of the healthcare sector and leads its peers in the size of the financial statement figures, but reports lower than average returns.

Both companies have a C rating from Weiss falling under the HOLD category. Monsanto was upgraded to C from C- on May 12 and Bayer received a downgrade from B- to C on March 11.

Even if they come to an agreement, the union between the German giant Bayer and St. Louis based Monsanto is not guaranteed as it would probably need to be approved by regulators. Someone pass me an aspirin.

[UPDATE: With Bayer making an increased, all cash, revised offer it makes it much more likely Bayer will have to raise a significant amount to close the deal. The enormous premium over Monsanto's current stock price makes this a clear take-it or leave-it deal, with the message Bayer appears ever so slightly desperate to take advantage of perceived Monsanto current weakness.]

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