Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Bayer's case for going after U.S. seed giant Monsanto may not be persuasive enough to satisfy its own investors. That's tricky, because the all-cash offer also may not be sufficiently attractive to win over Monsanto shareholders.

The German company wants to become a global leader in agricultural science, better able to help farming become more productive in a world where the population is growing and farmland is declining. The idea is that increased scale and scientific scope will boost R&D, while generating all the usual savings that come with big M&A.

Bayer's Ambition
A combination with Monsanto would create the world's biggest agriculture business based on 2015 sales
Source: Bayer

If this is true, it isn't going to be apparent in Bayer's numbers for a long time.

Bayer's $122-per-share offer values Monsanto's equity at $53 billion, 37 percent more than its market value on May 9, just before Bayer made a formal approach. That's a $14.4 billion premium. The projected $1.5 billion of pre-tax annual financial benefits clearly don't cover this. Some of these are cost savings, but some revenue gains. The mix isn't given, unhelpful because revenue gains are particularly hard to realize in takeovers. Say, conservatively, that they deserve a multiple of 10 to 12 times, then discount them for the fact they won't come for three years, and they're worth about $10 billion post-tax.

The return on acquisition doesn't look enticing either. Factor in Monsanto's net debt, and Bayer is paying an all-in cost of $62 billion to acquire a company projected to make just $3.1 billion of operating profit this year. It will take all the transaction benefits, plus some growth, for the deal to generate a post-tax return higher than Monsanto's 7 percent cost of capital.

This is all assuming that Bayer gets Monsanto for the price offered. Monsanto hasn't agreed to being taken over yet and may demand a sweetener for its blessing. In that case, Bayer would need to find further transaction benefits. It's not an unlikely scenario -- the take-out valuation is still lower than what rival Syngenta agreed to be bought for, as Bernstein analysts note.

Meanwhile, Bayer is planning a 14 billion-euro ($15.7 billion) equity increase to minimize the amount of debt it raises for the deal and maintain an investment-grade credit rating. Even so, Bayer could end up with projected net debt of 55 billion euros at completion. That's nearly four times its estimated pro-forma Ebitda for 2016 (excluding pension liabilities) -- painful.

That Wilting Feeling
Investors have struggled to understand Bayer's desire to buy Monsanto since talks emerged on May 12

So as things stand, Bayer becomes a highly leveraged entity doing a deal that won't pay off for shareholders for at least three years.

The broader strategic benefits that will come later may justify the slog. But this is an all-or-nothing bet for Bayer. True, the group can pay down borrowings quickly after the transaction, but there will be an opportunity cost here. Buying Monsanto will put Bayer offside from other M&A opportunities for several years.

This is a long way from a compelling transaction. Bayer's investors will have to hope that talks with Monsanto can unearth more value to make these terms more appealing. And that's before even having to justify a higher price.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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