On Wednesday, September 14, Bayer and Monsanto (MON) signed a definitive merger agreement. According to the deal, Bayer will acquire Monsanto for $57 billion (an enterprise value of $66 billion, which includes net debt) or $128 per share of Monsanto in an all-cash transaction. This means a ~22% premium over Monsanto’s price of ~$104 as of September 14 when the deal was announced.
Despite a 22% premium, Monsanto declined the next day to settle at ~$104 per share for reasons we’ll discuss later in this series. YTD (year-to-date), Monsanto has returned 6.6%, but much of this rise came in May when Bayer proposed a merger deal to the company. Back then, Monsanto rejected Bayer’s proposal of $122 per share, saying its “Board of Directors unanimously views the Bayer AG proposal as incomplete and financially inadequate.”
Since then, Bayer gradually increased its offer to $128 per share to sweeten the deal for Monsanto. This price represents a ~5% increase over Bayer’s original offer, whereas the market had expected the deal to settle as high as $135 per share, which is ~11% higher than Bayer’s original offer.
Monsanto’s YTD returns are similar to the S&P 500 Index (SPY), which is up 6.7%, and the VanEck Vectors Agribusiness (MOO), which is up 6.8%. In contrast, Bayer has a YTD return of ~17% (on XETRA in Germany). MOO invests a third of its portfolio in agricultural chemicals including Syngenta (SYT), PotashCorp (POT), and Agrium (AGU).
In this series, we’ll discuss this deal in more detail. We’ll also look at hurdles this deal will have to overcome.