Chemical firm Bayer makes $62B offer for Monsanto

German pharmaceutical giant Bayer AG is confident that its $62 billion bid for U.S. seed company Monsanto, announced Monday, will pass regulators' scrutiny.

But investors' response to the deal, may suggest that Wall Street is not so sure.

Bayer is offering an all-cash deal ​to acquire the St. Louis, Mo.-based company, which is the world's largest seed provider. Combining Bayer's crop protection products with Monsanto's seed offerings would create the world's largest agricultural supplier with a strong global presence in the U.S., Europe and Asia.

"We have long respected Monsanto’s business and shared their vision of an integrated business that we believe is capable of generating substantial value for Bayer, Monsanto and all of our key stakeholders," said Bayer AG CEO Werner Baumann on a conference call Monday.

Bayer would pay Monsanto shareholders $122 per share, a 37% premium over the closing price of $89.03 on May 9, the day before Bayer sent a written proposal to Monsanto, and more than 16% over its Friday closing price $101.52.

Monsanto (MON) shares gained 4.5% to $106.00 Monday, well short of Bayer's bid.

Shares of Bayer (BAYRY) fell 4.7% to $95.48 in New York trading.

That tepid response suggests concern about the likelihood of regulators' approval. Bayer's bid for Monsanto would be the third pending agribusiness and chemical merger in recent months.

Possible Bayer-Monsanto tie-up could rival Dow-DuPont deal

In February, Chinese government-owned China National Chemical said it would buy Switzerland-based Syngenta for $43 billion. Dow Chemical and DuPont agreed in December to merge in a $69 billion deal that would create a firm called DowDuPont, which would then split into three separate companies, including one focused on agriculture.

"They might be confident, but we don’t think regulatory approval is a layup," says Matt Arnold, materials analyst for Edward Jones. "This would make three significant transactions happening at the same time in the same marketplace. That likely makes regulatory scrutiny high. We don’t think it will be a fast or easy process."

The size of the resultant agribusiness conglomerate means the merger "will undoubtedly draw heavy scrutiny from antitrust officials, since any such acquisition would give Bayer significantly more control over supply chains in the agricultural industry," said Terrence Oved, partner of New York law firm Oved & Oved and chairman of the firm’s corporate, entertainment and real estate departments.

However, the two companies "have very little product and revenue overlap," Oved said, "so it is likely that any concerns raised from an antitrust perspective could be summarily addressed through divestitures of problematic assets.

And Monsanto may snub Bayer's offer, too.  "Bayer is offering Monsanto investors a healthy premium to current trading prices, but based on the way the markets have reacted to the takeover bid thus far, it seems there is a realistic possibility that the offer could be rejected as too low," Oved said.

Bayer did not give Monsanto "an offer that can’t be refused," Arnold said. The $122-a-share price offer for Monsanto "was there of its own volition without buyout potential within the last year," he says. "Odds of a transaction happening are low especially if this is the best offer Bayer is going to bring forward."

Bayer CEO Baumann said the companies have met several times over the last few years to assess business opportunities. Most recently, the companies met Thursday to discuss Bayer's bid for the world's largest seed company, which is based in St. Louis, Mo.

The companies could gain $1.5 billion total synergies after the third year as a combined company, with additional benefits in future years, he said.

"We have submitted our offer," he said. "Now, we have to wait for Monsanto's board to come back to us and react to our very attractive offer."

Monsanto sent a statement to USA TODAY that its board "is carefully reviewing the proposal. Monsanto will have no further comment until its Board of Directors has completed its review."

Another group that will need to be sold on the merger is farmers. "There’s a lot of concern among farmers that there will be fewer players providing them with the tools they need. (With this deal) that concern will likely only be amplified," Arnold said. "It will be up to all of the industry players over time to demonstrate that they still are acting with the customer in mind."

Both companies are familiar global agricultural brands. Bayer, which is headquartered in Leverkusen, Germany and employs 117,000 worldwide, is best known for aspirin, but it also makes seeds as well as compounds to kill weeds, bugs and fungus.

Monsanto, which employs 20,000, produces seeds for fruits, vegetables and other crops including corn, soybeans and cotton, as well as the popular weed-killer Roundup.

“Monsanto is a perfect match to our agricultural business,” Baumann said in a video message posted on his company’s website. “We would combine complementary skills with minimal geographic overlap. ... Jointly we would be an innovation powerhouse to address farmers' future needs.”

“The acquisition of Monsanto checks all the boxes in terms of strategic fit and value creation potential,” he added. “At the same time, ongoing consolidation activities in the industry make this combination by far the most attractive one.”

Bayer confirms takeover talks with Monsanto

Bayer said it plans to finance the acquisition with a combination of debt and equity, the latter to be raised largely by issuing new shares.

The German company said that it “is prepared to proceed immediately to due diligence and negotiations and to quickly agree to a transaction.”

The Associated Press contributed to this report.