April 10, 2018 / 12:14 PM / a year ago

Breakingviews - Bayer investors get unwelcome antitrust present

The corporate logo of Bayer is seen at the headquarters building in Caracas, Venezuela March 1, 2016. REUTERS/Marco Bello

LONDON (Reuters Breakingviews) - Bayer and Monsanto’s two-year regulatory saga is almost over. The drug and crop-science groups struck a deal with antitrust regulators at the U.S. Department of Justice, according to the Wall Street Journal, clearing one of the final hurdles for a deal that values Monsanto’s equity at almost $60 billion. However, its iffy financial logic means Bayer shareholders can hold off the champagne.

The latest antitrust remedies forced on Bayer include offloading further seed and seed-treatment assets to German peer BASF, the WSJ reported late on Monday citing people familiar with the matter, as well as unspecified concessions relating to its digital-farming business. Those are on top of around 6 billion euros ($7.4 billion) of disposals Bayer agreed with the European Commission in March, including selling to BASF its seed and pesticide assets that overlap with Monsanto’s operations in those markets.

Judging by investors’ reaction, the deal is almost home and dry, despite still requiring approval in India and Russia. Monsanto’s shares on Monday closed just 2 percent shy of Bayer’s cash offer of $128 per share, and the German group said in a statement that it expected the transaction to close by the middle of 2018. Shareholders now have little recourse to prevent what looks like an expensive deal, given that German law does not require companies to seek approval for acquisitions.

Bayer’s plan is to rip out overlapping costs and, by integrating the two groups’ seed and chemicals products, help farmers boost crop yields. The present value of those savings, estimated by Bayer at $1.5 billion a year, is about $12 billion, according to Breakingviews estimates. But Bayer is paying a premium worth more than $17 billion over Monsanto’s undisturbed share price, destroying $5 billion of shareholder value.

The market is unsurprisingly sceptical. Bayer’s shares are down 2 percent since May 9, 2016 – the day before its written proposal to Monsanto. Germany’s DAX Index is up 24 percent and BASF shares are up 23 percent over the same period, in which the 77 billion euro chemicals specialist gobbled up Bayer’s castoffs at regulators’ behest. It seems to have gotten the better deal.


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