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Bayer unveils $62bn offer for 'perfect match' Monsanto

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Bayer shares extended losses, hitting their lowest in more than two years, after the conglomerate revealed that it had offered $62bn in cash for US-based Monsanto, in what would be the biggest foreign takeover by a German group.

Bayer- which last week confirmed that it had "recently met" Monsanto executives to discuss buying the seeds giant - on Monday revealed that it was offering $122-a-share for the Missouri-based group, valuing the stock at about $53bn, with debt accounting for a further $9bn.

The offer is equivalent to a 37% premium to the Monsanto share price before rumours of a Bayer approach emerged two weeks ago, and would represent a multiple of 15.8 times the US group's earnings before interest, taxation, depreciation and amortisation (ebitda) for the last 12 months, an apparently generous multiple.

Monsanto shares have not stood at $122 a share for a year - since before the revelation of the group's, ultimately unsuccessful, bid for Swiss-based rival Syngenta, and the worsening conditions for ag input groups prompted by the dent to farmers' profitability from weak crop prices.

Monsanto, like many peers, has over the past year unveiled profits downgrades and job cuts.

'Unique and compelling opportunity'

However, Bayer said that the rationale for the deal was supported by deal benefits which it estimated worth $1.5bn a year, through the likes of cutting out duplicated costs.

Bayer – publishing a "confidential" letter sent to Hugh Grant, the Monsanto chairman and chief executive, on May 10 – said that a tie-up between the two groups would offer "substantial benefits" and "a unique and compelling opportunity to maximise value for both our companies' shareholders".

The letter also revealed that Bayer and Monsanto had held a series of talks in the past over a deal, saying that the groups had "over the years… had multiple discussions regarding potential avenues to realise our shared vision regarding an integrated approach and strategy to the agricultural industry".

Bayer, which said it was "very confident" over achieving antitrust approvals for a deal "in a timely manner", said it was "prepared to move expeditiously" to complete a tie-up.

'Extraordinary opportunity'

A takeover would be the latest in a series for the industry, in the face of the weakened market conditions, which has heightened the importance of cost cuts for supporting profits and indeed, in slashing industry share prices, reduced the price of deals for acquirers.

Syngenta in February agreed a takeover by China's ChemChina, while Dow Chemical and DuPont are enacting a tie-up which will see them spin off their merged agrichemicals and seeds operations.

Werner Baumann - who became Bayer chief executive three weeks ago, rising from finance director - added that a takeover of Monsanto offered the German group "an extraordinary opportunity to create a global leader in the agriculture industry.

"Monsanto is a perfect match to our agricultural business," he said, adding that the proposed deal was "strategically compelling and completely logical.

"The acquisition of Monsanto checks all the boxes in terms of strategic fit and value creation potential," viewing a Bayer-Monsanto tie-up as "by far the most attractive" of the potential mergers among sector leaders.

Shares fall

Indeed, while the strength in Bayer's ag division lie in agrichemicals, Monsanto – although the owner of the Roundup glyphosate weedkilller brand - is best known for its seed, minimising the potential for a tie-up raising market monopoly concerns among antitrust officials.

By contrast, one of the main reason that Syngenta, which is stronger in seed, gave last year for rebuffing Monsanto's interest was that the antitrust objections that a tie-up between the two groups would spur.

Bayer added that its offer for Monsanto was "not subject" to financing conditions, with the cash to be garnered from debt and from a rights issue expected to raise about $15bn.

Bayer shares stood 3.2% lower at E86.65 in midday deals in Frankfurt, earlier touching E86.30, the lowest since October 2013.

The shares are now down 14.0% since Mr Baumann took charge of the conglomerate at the start of the month.

Monsanto's New York-listed shares soared 9.5% to $111.17 in before-the-bell trading.

By Mike Verdin

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