Monsanto Doesn't Need Syngenta
Stephen Simpson, CFA
Stephen Simpson, CFA
Monsanto: A Very Compelling Long Opportunity Rarely Seen In Large Caps
Alpha Gen Capital • 163 Comments
Alpha Gen Capital • 163 Comments
Thu, Oct. 20, 6:45 PM
- Morgan Stanley (NYSE:MS) stands to collect $120M if Bayer (OTCPK:BAYRY) closes its $57B takeover deal for Monsanto (NYSE:MON), which would be the second-largest deal fee for a single bank on record.
- The big payout is a bright spot in an otherwise down year for M&A activity, as global deal volume YTD currently stands at ~$2.6T, 24% lower than the same period in 2015.
- The payments were disclosed in a MON proxy filing, which also showed the company held takeover talks with three other groups - identified by Financial Times as BASF (OTCQX:BASFY), Koch Industries and China's Sinochem - before agreeing to the pending deal with Bayer.
Thu, Oct. 13, 6:18 PM
- Deere (NYSE:DE) says the Justice Department is unfairly accusing it of trying to monopolize a market that does not exist with its challenge to the planned purchase of Monsanto's (NYSE:MON) Precision Planting seed planting equipment business.
- In August, the DoJ said the proposed deal would mean higher prices for high-speed precision planting equipment; in response, DE takes issue with the Department's definition of "high-speed precision planting system," saying it was vague and ambiguous, and "denies that there is any meaningful economic market consisting of 'high-speed precision planting systems.'"
- The DoJ initially cleared the acquisition in October 2015 but opened a new investigation and filed a lawsuit in August 2016 to block the deal following a protest by an unnamed competitor; DE says the DoJ's case is "designed to protect a competitor, not competition."
Tue, Oct. 11, 10:03 AM
- Bayer (OTCPK:BAYRY -0.2%) has finalized the syndication of a $57B bridge loan to support its acquisition of Monsanto (MON +0.1%), Bloomberg reports.
- A total of 27 lenders joined the 12-month deal including European and Japanese banks, according to the report.
- Bayer is set to buy MON for $66B, with plans to fund the deal with a combination of debt, the issuance of $19B of mandatory convertible bonds and a rights offer.
Wed, Oct. 5, 8:47 AM
- Monsanto (NYSE:MON) -0.4% premarket after reporting better than expected FQ4 earnings and revenues, helped by higher corn seed volumes and lower expenses, but guiding FY 2017 earnings below consensus.
- MON sees FY 2017 EPS of $4.50-$4.90, vs. $4.92 analyst consensus estimate and expects free cash flow of $1.4B-$1.5B, assuming the successful sale of the Precision Planting equipment business and a meaningful first-year investment in its dicamba production facility.
- Despite strong penetration of Intacta RR2 PRO technology and record U.S. corn seed volumes, MON full-year net sales fell Y/Y due mostly to currency headwinds and price declines in agricultural productivity; MON's Seeds and Genomics segment net sales totaled $1.6B for the quarter.
- MON says its continued focus on return on innovation and cost discipline in 2016 sets up a strong base for growth in 2017, where it expects strong cash flows and growth in EPS.
- MON is being acquired by Bayer (OTCPK:BAYRY), with the deal expected to close by year-end 2017.
Wed, Oct. 5, 8:14 AM
Tue, Oct. 4, 5:30 PM
Tue, Sep. 27, 3:58 PM
- Monsanto (MON +0.1%) is upgraded to Neutral from Sell with a $104 price target at Goldman Sachs, joining investors in taking a wait and see approach as evidenced by the significant spread between the current $102 stock price and Bayer's $128 offer price.
- The firm says it does not see any turnaround of prospects at least until 2018, citing cyclical factors weighing farmer economics.
- Yesterday, analysts at Bernstein similarly upgraded shares to Market Perform from Underperform, but advises staying away from the stock for the next 6-9 months, as any of several potential catalysts likely would be negative for the Bayer deal's closing.
- Bernstein believes that as a standalone company, MON is worth ~$80/share, with weak prospects for growth; with a 50% chance of going back to the $80 fundamental valuation if the Bayer merger is scuttled and a 50% of being worth $128, it assigns a new $105 price target.
Wed, Sep. 21, 3:28 PM
- Monsanto (MON +1.3%) is upgraded to Overweight from Neutral with a $128 price target at J.P. Morgan, which believes risk in the shares is "less than what the market assumes," despite regulatory hurdles for its deal with Bayer.
- JPM believes the merger will happen at the $128/share offer share even as other investors gauge the likelihood of success at just 34% probability.
- JPM thinks MON would earn $5/share and sell at ~20x earnings late in 2017, which would work out to $100/share, and given high returns and consistent with historical valuation, the firm sees risk in the shares as $100 and the reward at $128.
Wed, Sep. 21, 2:54 PM
- German lawmakers lashed out in skepticism today at Bayer's (OTCPK:BAYRY -0.9%) planned takeover of Monsanto (MON +1.1%) in a meeting of parliament that highlighted the backlash Bayer faces in its home market against buying a company that many Germans see as a champion of genetically modified crops.
- Eight of the 12 lawmakers who spoke, including three members from within Chancellor Merkel’s coalition, criticized the deal; the lawmakers have no legislative authority to stop the deal, but some are calling on regulators to do so.
- The deal also drew scrutiny at the U.S. Senate Judiciary Committee yesterday, where Sen. Grassley said the deal was part of a "tsunami of consolidation" that could reduce choice and raise the price of chemicals and seed for farmers, which ultimately would affect choice and costs for consumers.
- Company execs - including some from DuPont (DD +0.4%), Dow Chemical (DOW -0.1%) and Syngenta (SYT +0.2%) - sought to allay concerns and reassure lawmakers that they would keep licensing new types of seeds to smaller companies.
Tue, Sep. 20, 7:58 AM
- Bayer (OTCPK:BAYRY) is considering dropping the name of Monsanto (NYSE:MON) in its $66B purchase to avoid sullying its reputation, according to a Bloomberg report.
- While MON is known for making the herbicide Agent Orange used in the Vietnam War and tangling with environmental groups over genetically modified crops, Bayer brought Aspirin to market in 1899 and this year topped a ranking of the world’s most reputable pharmaceutical brands from the Reputation Institute marketing firm.
- Bayer CEO Werner Baumann says there is an opportunity for the companies to jointly “get beyond this image and reputation thing” by building on the trust Bayer enjoys in Europe.
- Bayer should have plenty of time to make a decision: Antitrust reviews in ~30 jurisdictions worldwide mean that the deal is not likely to be completed before late 2017.
Mon, Sep. 19, 7:21 AM
- Bayer (OTCPK:BAYRY) plans to meet with banks this week as it works on a $57B bridge loan backing its proposed takeover of Monsanto (NYSE:MON), Bloomberg reports.
- BofA, Credit Suisse, Goldman Sachs, HSBC and J.P. Morgan agreed to provide bridge financing, and talks tomorrow will form part of the syndication of the loan agreed between lenders and the company, according to the report.
- Bayer last week agreed to buy MON for $66B and plans to fund the deal with a combination of debt, the issuance of $19B of mandatory convertible bonds and a rights offer.
Thu, Sep. 15, 2:18 PM
- Monsanto (MON -1.9%) moves lower, slipping nearly 20% below Bayer's (OTCPK:BAYRY -1.8%) $128/share offer price, amid doubts about the limited business overlap, potentially lowballed terms and significant closure risk.
- CLSA downgrades MON Underperform with a $110 price target, citing disappointing deal terms and a far higher regulatory risk than both management teams suggest; the firm also notes that the offer price is less than 10% higher than where the stock traded two years ago, and says the $2B breakup free is a "fraction" of what MON offered in its pursuit of Syngenta.
- Piper Jaffray keeps its Overweight rating on MON while lifting its price target to the $128 offer price, which it says was lower than expected; the firm pins its approval conviction on the "minimal crossover" between the two companies, while admitting that MON's remarks about Bayer as the best option for shareholders raises doubt about the company's growth expectations.
- BMO keeps his Outperform rating and lifts its target to $128, echoing that product overlaps are small and that the deal will be closely scrutinized across the globe given the practical realities of farmer wallet impact, the companies involved, and ongoing reviews of the Dow-DuPont and ChemChina-Syngenta tie-ups, adding that MON could trade sideways for weeks or even months.
Wed, Sep. 14, 12:19 PM
- Monsanto (MON +1.3%) is higher after Bayer (OTCPK:BAYRY +1.2%) finally clinched its $128/share takeover, but the stock still trades at ~$107 amid some doubt that the deal actually will happen.
- Bernstein analysts anticipate significant anti-trust and political hurdles, and assign just a 50% probability of that the deal will be completed, citing conglomerate antitrust concerns as a large integrated crop protection and seeds company, U.S. national security concerns from a CFIUS review; and other political concerns, such as Sen. Grassley's hearing later this month on agriculture consolidation.
- The proposed merger likely will face an intense and lengthy regulatory process in the U.S., Canada, Brazil, the EU and elsewhere; MON CEO Hugh Grant said in today's conference call that the companies will need to file in ~30 jurisdictions for the merger.
- Bayer’s cottonseed, canola seed and glufosinate herbicide businesses, with sales totaling ~$1B, may need to be divested, according to a Bloomberg analysis.
Wed, Sep. 14, 7:28 AM
- It's official: Bayer (OTCPK:BAYRY) agrees to acquire Monsanto (NYSE:MON) for $128/share in cash, in a deal that values MON at ~$66B.
- The offer represents a 44% premium to MON's closing share price on May 9, the day before Bayer's first written takeover proposal.
- Bayer expects annual synergies of ~$1.5B after year three; plus additional synergies from integrated solutions in future years.
- Bayer has committed to a $2B reverse antitrust break fee, reaffirming its confidence that it will obtain the necessary regulatory approvals.
Wed, Sep. 14, 6:50 AM
- Monsanto (NYSE:MON) has finally agreed to a takeover offer from Bayer (OTCPK:BAYRY), sources say, valuing it at $128 per share or a total of more than $66B.
- The deal would be the largest all-cash transaction on record and put a quarter of the combined world market for seeds and pesticides under one roof.
- Bayer has also settled on a $2B break-up fee for the deal, which is expected to close by the end of 2017.
- MON +1.7% premarket
Tue, Sep. 13, 6:47 PM
- Bayer (OTCPK:BAYRY) is expected to announce the acquisition of Monsanto (NYSE:MON) tomorrow for more than $66B, Reuters reports.
- The breakthrough after more than four months of talks reportedly comes after Bayer further improved on its sweetened offer of $127.50/share in cash it disclosed last week, but the deal will still value MON at less than $130/share.
- After MON's board approves the deal today, Bayer's board will meet tomorrow to also authorize the deal, with the goal of an announcement before the stock market opens in New York, according to the report.