HALISTER: BAYER STREET WRAP: MON Deal Unlikely, Would Require Equity Raise

BAYER STREET WRAP: MON Deal Unlikely, Would Require Equity Raise

(Bloomberg) -- Bayer extends May 12’s declines, falling as much as 1.4% before coming back to trade down 0.9% as of 9:35am in Frankfurt; shares fell 4.9% Thursday after a Bloomberg report that co. is exploring a potential bid for Monsanto.
  • Bayer said to discuss bid internally and with advisers; financing, including potential asset sales, also discussed
  • Another report also mentioned potential interest for Monsanto from BASF
  • Monsanto street wrap here
BANKHAUS LAMPE (buy on Bayer)
  • Says can’t find fully convincing answer to why Bayer should buy Monsanto, expects co.’s management to come to similar conclusion
  • Rates chances of Monsanto deal as “close to zero,” expects Bayer share price to recover
  • Recommends buying in the dip
JPMORGAN (neutral on Bayer)
  • Analysis indicates limited accretion even with asset sales to reduce equity component of possible deal
  • Bayer very unlikely to be able to finance deal purely on cash
  • Estimates deal enterprise value of EU61b, assuming price of $135 per Monsanto share (50% premium to May 11 close of $90)
  • Any acquisition of Monsanto likely to require capital increase
  • Investors likely to be “relatively lukewarm” on potential deal given limited accretion, investor desire for Bayer to strength Pharma pipeline post recent setbacks
  • Acquisition of Monsanto seems unlikely
BARCLAYS (equal weight on Bayer)
  • Agrochemicals environment significantly changed recently with ChemChina/Syngenta, DuPont/Dow; notes structural trend toward combination of agrochemicals with seeds
  • Says struggles with financials of potential Bayer/Monsanto deal
  • “Bayer simply doesn’t seem to have the financial muscle to use a lot of cash at the moment for major deals”
  • Deal of this size would require a big chunk of equity
  • Notes Bayer’s Crop Protection portfolio relatively weak in seeds, deal to boost it would be strategically sensible
SABADELL (under review)
  • Interesting transaction for concentration of business and synergies that could result from deal
  • Has “serious doubts” about deal viability, cites large size of potential transaction; many divestitures required for purchase; complex approval process at regulatory level (global share of resulting co. would be ~35%); high Monsanto multiples
  • Has doubts on deal value creation
DZ BANK (hold on Bayer, buy on BASF)
  • Full-scale Monsanto takeover from Bayer or BASF highly unlikely
  • Both companies have significant debt levels, ruled out transforming acquisitions lately
  • Deal not possible without raising equity capital
  • Possible that Monsanto approached both cos. on cooperation, JVs and asset deals
  • Full-scale takeover/merger would be highly critical in relation to antitrust regulators in Europe, U.S., China
COMMERZBANK (hold on Bayer)
  • Bayer acquiring Monsanto would make strategic sense, substantially strengthen seeds business within Crop Science
  • However deal would be costly, require portfolio and/or capital measures
MORNINGSTAR
  • Takeover by either Bayer or BASF not “all that likely”
  • Expects Monsanto’s management to resist being acquired
  • Monsanto sees itself as acquirer in current consolidation phase, not a target
  • Possibility that talks may end up in partnership or JV rather than purchase
  • Doesn’t see regulatory concerns as big hurdle if talks were to go ahead
DATA
  • Of 34 analyst ratings, 18 are buy, 14 hold and 2 sell, with an average PT of EU121.6 implying ~29% upside
  • Bayer is trading on 11.8x next year’s earnings vs 14.2x for the Stoxx 600 Chemicals index, according to Bloomberg data
Alert: HALISTER
Source: BFW (Bloomberg First Word)

Tickers
BAYN GR (Bayer AG)
MON US (Monsanto Co)
BAS GR (BASF SE)

People
Bankhaus Lampe Zam (Bankhaus Lampe KG)

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