Monsanto (MON), viewed as the bogeyman by some anti-genetically modified organism activists, may soon become an even bigger corporate entity.
Bayer, the German agrichemicals giant, has made an unsolicited takeover bid for America's Monsanto. The offer was disclosed on Wednesday by Monsanto, which said its board of directors is currently reviewing the bid. Together, the companies would have annual revenue of more than $67 billion and become the world's largest seed and crop-chemical provider.
The bid comes amid widespread challenges in the agribusiness industry, thanks to sliding commodity prices that's prompted a 19 percent plunge in Monsanto's share price over the past year. While Bayer may hope the companies could prove stronger together than as rivals, there are many hurdles to overcome before a deal could take place, including antitrust issues.
A merged Bayer-Monsanto would control about 28 percent of the world's pesticides, 36 percent of U.S. corn seeds, and 28 percent of soybean seeds, according to Dow Jones, citing Morgan Stanley estimates.
That may not go over well with either government regulators or consumers, especially given resistance among activists to Monsanto's GMOs and products like Roundup. Monsanto has inspired hashtags such as #monsantoevil, with Modern Farmer magazine noting that the company had become "the face of corporate evil" in the views of some.
Antitrust issues could derail a potential merger, as well. Monsanto failed to buy rival Syngenta last year after the pesticide maker rejected Monsanto's advances, arguing that the price was too low and that antitrust regulators wouldn't allow it. That merger would have been valued at about $47 billion. A price on a Bayer-Monsanto merger wasn't disclosed.
Still, it's likely that Bayer would have to offer a significant premium to succeed, with Bernstein analysts Jeremy Redenius and Ronny Gal pegging the amount at as much as $125 per share, or a roughly 29 percent premium to its closing price on Wednesday.
To get the deal completed, Bayer may have to sell assets, including its animal-health business and its stake in a plastics company, Bloomberg reported.
Bayer may be hoping to snare Monsanto at a low point, given the company has cut its earnings forecast amid the commodity slump. Both companies are also facing a consolidation wave among rivals, such as China National Chemical Corp.'s successful pursuit of Syngenta after Monsanto ended its bid.
"Despite the ongoing consolidation in the agrochemicals market, we believe there is no need for Bayer to rush into a deal with Monsanto," Bankhaus Lampe KG analyst Volker Braun said in a research note, according to Bloomberg News. "We see enough opportunities arising from pending M&A transactions in the industry to buy assets at better prices and more favorable risk profiles."