Now that Bayer has bought Monsanto, what’s next for Traders and Investors?
On Wednesday, German pharmaceutical and chemical firm, Bayer AG concluded its much-sensationalized deal to purchase Monsanto Co. The buyout deal was finally concluded at $66B to mark the largest all-cash deal ever in the equity markets.
The merger deal, when completed will also give birth to a global agricultural behemoth that would be the world’s largest supplier of seeds and pesticides when measured by sales. More so, Bayer would now control about 30% of the overall seeds market and it would have more leverage to determine pricing.
Here’s what we know about the Bayer-Monsanto deal
Firstly, Bayer’s move to acquire Monsanto is one of the biggest agrochemical mergers in recent times. Bayer hopes to unlock a synergy of purpose by merging its crop chemical business with Monsanto’s seed business. At the conclusion of the merger, Bayer would own an agrochemical business that provides crop chemicals, seeds, and computerized agro-services to farmers. However, Bayer is yet to make a decision on what to do with the Monsanto brand after it completes the merger.
Secondly, Bayer needs the deal in order to stay competitive in the agribusiness sector because there has been an increase in competition for grain exports amidst a downturn in the global farm economy. Markus Manns of Union Investment, which has a sizeable stake in Bayer notes that “Bayer’s competitors are merging, so not doing this deal would mean having a competitive disadvantage.”
The buyout deal is expected to be concluded by the end of 2017; hence, traders can expect a significant number of uptrend and downtrend in Bayer’s stock as the German firm tries to tie up all the loss ends on the deal. It is also important to note that Bayer is liable to pay a $2B break-up fee to Monsanto if it doesn’t get the regulatory approval to complete the deal.
The Bayer-Monsanto deal has been the object of much speculation due to the political and regulatory hurdles that could have killed the deal. Interestingly, the Bayer-Monsanto deal has introduced another dimension of volatility that will echo through the commodities, agriculture, agro-allied industries. Neil Wilson, an analyst with ETX Capital notes that “the takeover deal could increase the volatility, which could make or mark positions in the futures, options, and spread betting industries”.
Finally, traders and investors can expect the shares of Bayer to see increased volatility in the next couple of months as the German firm navigates a complex regulatory process on many fronts. Bayer would need to satisfy antitrust requirements in Brazil, Canada, United States, and in the European Union. In fact, Monsanto’s CEO Hugo Grant has revealed that the firm will need to file approval for the merger in about 30 jurisdictions.
Here’s what traders and investors think about the Bayer-Monsanto deal
The global newsstand (online and offline) is filled with stories from different angles on Bayer’s plan to buy Monsanto. However, a recurring theme in the news is that Bayer shareholders and Monsanto shareholders are not particularly impressed with the merger deal.
Bayer investors are skeptical about the $66B price tag and they think that Bayer is most likely paying too much to acquire Monsanto. On the other hand, shareholders at Monsanto think that Bayer has shortchanged them and that the deal should have been completed at a higher price. Interestingly, the shares of Bayer has fell by 2.3% to settle at €91.37 on Thursday after the news of the merger broke and Monsanto’s stock fell 2.4% to $104.22.
However, Wall Street observers think that the fact that both sides are not very smitten by the terms of the deal suggests that nobody was cheated. Andy Murray, portfolio manager at Becker Capital Management, which owns share of Monsanto observes that “no one’s exactly thrilled, which probably means it ended up in a good compromise situation.”
In the final analysis, Bayer’s acquisition of Monsanto is not a done deal and the German firm would need to navigate through treacherous waters to conclude the deal. Bernstein Research posits that the result of a survey among investors indicates a 70% likelihood that the deal will scale through. In-house analysts at Bernstein Research are more conservative and they think that the merger deal only has a 50% chance of scaling through.
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