4 Things to Know About the $62B Bid for Monsanto

Bayer announces specifics of its bid
By Kate Seamons,  Newser Staff
Posted May 23, 2016 6:36 AM CDT
4 Things to Know About the $62B Bid for Monsanto
This Aug. 31, 2015, file photo shows the Monsanto logo seen at the Farm Progress Show in Decatur, Ill.   (AP Photo/Seth Perlman, File)

A German company, in a country that's definitely no fan of genetically modified crops, has offered to buy the world's biggest producer of the seeds they come from for $62 billion—in cash. Bayer on Monday said its offer of $122 a share is a 37% premium over Monsanto's closing price on May 9; Bayer's unsolicited proposal came the next day. Four things to know:

  1. A successful merger would create the world's largest agribusiness, trumping the would-be DowDuPont; the two have a combined market value of $132 billion. Bayer called the move a "compelling opportunity to create a global agriculture leader." But one major shareholder condemned the move, calling it "arrogant empire-building."
  2. Bayer's share price has fallen 14% since word of the bid trickled out last week, reports Reuters, with a 3.6% drop occurring early Monday. That brings Bayer's share price to a 30-month low.

  1. Why the drop? For one, Bayer is a two-headed company: It makes herbicides and pesticides, but it's thought of as a pharma company, one that invented aspirin and sells Alka-Seltzer. Deutsche Welle cites Deutsche Bank's assertion that a merger would mean about 55% of the combined company's "core earnings" would come from agriculture. As the BBC puts it, that mix is "likely to displease investors who had bought shares in Bayer for its pharmaceutical offering."
  2. Second, there's the matter of how Bayer would finance such a deal: with debt and equity. "We will increase our debt level on our balance sheet substantially," explained Bayer's CFO, with the expectation that "strong cash flows" would allow for quick debt reduction. One analyst puts the expected debt level at about $45 billion, per the Wall Street Journal, which reports Bayer's net debt was about $20 billion last year.
(Read more Monsanto stories.)

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