Photographer: Daniel Acker/Bloomberg

Monsanto Due Diligence Looms as Next Step in Bayer Deal Push

  • Access to Monsanto’s books could break stalemate over merger
  • Seed company may seek per-share bid in low $140s, analyst says

First came the initial bid, then the rejection. Now, the next step in Bayer AG’s quest to buy Monsanto Co. and create the world’s largest agricultural company is likely to hinge on whether the U.S. seed giant will agree to open its books.

Bayer made its $62 billion offer last month and Monsanto rejected the price as too low while also saying it was open to further discussions. After the rejection, Bayer sent Monsanto a letter reiterating its $122-a-share proposal and seeking due diligence, a move rebuffed by Monsanto, which is refusing to grant such access until the German company raises its offer, according to people familiar with the matter, who asked not to be identified because talks are private.

Both sides need to sit in a room to break the stalemate and Monsanto should show Bayer its books since it’s the takeover target, according to Piper Jaffray Cos. analyst Brett Wong. While Monsanto is probably seeking a price in the low $140s range, Bayer is unlikely to budge on its offer without a look at confidential company data, he said Monday in an interview.

“You basically have Monsanto wanting a higher price before they let them take a look at their books and Bayer wants to look at their books before they offer a higher price,” said Minneapolis-based Wong, who has an overweight rating on Monsanto’s stock. “I just think there’s probably going to be some time when there’s a tug-of-war and somebody will break.”

Industry Consolidation

Spokesmen for both companies declined to comment on any deal discussions and whether they include possible diligence.

Bayer is hoping that Monsanto’s shareholders will put pressure on its management to open the books and pave the way for a higher offer, according to two of the people. The American company, on the other hand, views the current Bayer offer as opportunistic and is of the opinion that takeover targets rarely accept the first offer, another person said.

It’s typical for buyers and sellers to jostle over price and the structure of negotiations during takeover attempts.

Monsanto is the largest seed supplier and a pioneer of genetically modified crops, which now account for the majority of corn and soybeans grown in the U.S., while Bayer’s strength is in crop chemicals. The proposed deal, along with China National Chemical Corp.’s planned acquisition of Switzerland’s Syngenta AG and the Dow Chemical Co.-DuPont Co. merger, would mark the reshaping of the global agricultural industry, potentially leaving three corporations to dominate the market for key crop inputs.

‘Game of Chicken’

The combination of St. Louis-based Monsanto and its German suitor makes sense to at least some investors. The merger would offer farmers an integrated supplier of pesticides and seeds while also giving Bayer access to Monsanto’s analytical tools, said Kelly Wiesbrock, a managing director at San Francisco-based Harvest Capital Strategies LLC, which manages $2.3 billion of assets, including Monsanto shares.

Monsanto doesn’t "have an intention of giving the firm away, nor do they have intentions on completely ceding control," Wiesbrock said. "They want a seat at the table and I think they’ve earned it."

Shareholders are likely to press Monsanto to agree to a deal, said Chris Shaw, an analyst at Monness Crespi Hardt & Co. Monsanto fell 0.3 percent to $106.75 in New York Tuesday.

“It’s a little bit a game of chicken,” Wong said. “You’ve got these proud, massive companies that are trying to do a deal. A major deal.”

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