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Bayer Offers $62B in Cash for Monsanto and No One's Impressed

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By Casey C. Sullivan, Esq. on May 23, 2016 3:57 PM

Bayer, the German drug giant, has put forward an offer to buy Monsanto, the St. Louis-based purveyor of genetically modified crops, for $62 billion -- in cash. The offer, which came without solicitation by Monsanto, would be the largest all-cash takeover ever, according to Reuters.

But, it's far from a sure thing, with investors in both companies reacting unenthusiastically.

Two Major Agrochemical Players

Bayer is best known for its first product, Aspirin, but Bayer also has a major pesticide, seed, and biotechnology business. (The company is less known for selling Heroin as a children's medicine in the late 1890s. Things were different back then.) Monsanto is one of the world's largest GMO agrochemical companies, with its genetically modified "Roundup Ready" seeds dominating corn, soybean, cotton, and canola crops in many markets.

Consolidation of the two companies would bring together some of the world's largest agrochemical players. Bayer's LibertyLink pesticides are the main alternative when weeds have grown resistant to Monsanto's Roundup herbicides, Reuters reports. Bayer and Monsanto wouldn't be the only two major players merging, either. ChemChina recently bought up Syngenta, while Dow and DuPont merged last year, before splitting into three separate companies.

Bayer's Offer Isn't Generating Excitement

Despite the fact that Bayer's offer is the largest all-cash buyout offer on record, it's not generating much excitement. Bayer's shares dropped 5.4 percent on Monday, hitting a two and a half year low. Monsanto's stock rose about as much, by 5 percent, to $106.61. But that's still much lower than the $122 per share Bayer is offering, indicating a tough road ahead for Bayer.

Part of the reason that Bayer's offer has fallen flat is that, while massive, it's not quite as high as some would like. The "mammoth, quasi-hostile deal-making adventure," as The Wall Street Journal describes it, values Monsanto at 15.8 times earnings before interest, tax, depreciation, and amortization. That's high, but it's less than the 17-times price ChemChina paid to take over Syngenta. And, as the deal stands now, Bayer shoulder most of the risk involved in the deal.

Bayer, however, remains confident that the deal will work out, saying it expects the acquisition of Monsanto to raise annual earnings by $1.5 billion - that is, if Monsanto and regulators allow the purchase to go through.

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