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 is belatedly finding its spine in its attempt to buy Monsanto.

The German life-sciences group is reportedly resisting Monsanto's demands that it raise its $122-a-share takeover proposal in exchange for being allowed to conduct due diligence on the U.S. seeds giant. The tactic creates an impasse. But it helps reset Bayer's negotiating position, given the opening bid was too high.

Bayer recently resubmitted its proposal with the price unchanged from the original pitch published on May 23, according to a Wall Street Journal report. The move seems pointless at first glance. Monsanto management dismissed the initial offer as too low almost three weeks ago. While Monsanto agreed to talks and accepted a tie-up made strategic sense, the implication was that discussions would be about the offer price needed to open its books.

Still, Bayer management has nothing to lose and something to gain by playing hardball. It faces no rival bidders right now, and knows that Monsanto shareholders are keener on selling than Bayer investors are on buying.

Wilting Support
Bayer's share price has recoiled at the possibility of the company buying Monsanto
Source: Bloomberg

The difficulty Bayer faces is that its offer was too generous as a tactical opening shot. Any bidder should expect its first price to be rejected. One raise normally gets due diligence and a second gets a deal backed by the target's management.

That's M&A-101, but it's not easy for this traditional dance to play out here. Monsanto was trading at about $90 a share before Bayer bid, so the opening premium was already about 35 percent, where many deals end up. That hands most of the deal's $1.5 billion yearly financial benefits to Monsanto shareholders, and the transaction would take at least three years to earn its cost of capital. So Bayer can't raise its offer without due diligence to justify it offering more value. And Monsanto can't offer due diligence without the pretext of a raised offer.

Even though Bayer's right not to start bidding against itself, its options are limited because of the flawed opening gambit.

First Seed
Bayer's $122-a-share offer came after Monsanto stock had been hovering around $90
Source: Bloomberg

In theory it could go hostile with the $122-a-share offer. The snag is that might not win over a majority of Monsanto shareholders. Or it could walk away and give up -- doubtless to the delight of its own shareholders.

What could break the impasse? Bayer would need to demonstrate more value from the combination before it raised. One way this could happen is if Wall Street's expectations of Monsanto's operating performance improve. Or perhaps Bayer could show there's more value than it's revealed so far. If it really has backbone, it should wait for some more flexibility from Monsanto.

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

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Chris Hughes in London at

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James Boxell at