In a remarkable case of predator becoming prey, Monsanto is being discussed as a target of the takeover wave it helped spark a year ago.
Before Monsanto made a run at Swiss company Syngenta, the world of corporate agriculture looked stable. Six seed and crop-chemical firms competed globally, but none was big enough to be dominant.
Syngenta rejected Monsanto’s $45 billion offer last June, but the industry’s equilibrium clearly had been shaken. In December, Dow Chemical and DuPont agreed to combine their ag businesses to create a clear No. 1 player. By February, Syngenta would sell itself to a state-owned Chinese company.
That left Monsanto and two German companies, Bayer and BASF, eyeing one another warily. They reportedly talked about joint ventures and other deals but couldn’t agree on anything. Now, according to published reports, both Bayer and BASF have considered making bids for Monsanto.
The thought of Monsanto being bought should frighten anyone who’s concerned about the St. Louis economy. Not only is this one of our largest corporate headquarters, it’s also one that has considerable growth potential.
So, we have to hope this latest takeover frenzy is just talk. Jeffrey Stafford, an analyst at Morningstar in Chicago, thinks there’s a good chance that nothing will happen.
“I think they see themselves as an acquirer,” he said of Monsanto’s management. “I don’t think they would see themselves as just a division of a larger German chemical conglomerate.”
Bayer or BASF could make a hostile bid, but Stafford thinks the price tag will give them pause.
Based on the pricing of the Syngenta deal, and accounting for Monsanto’s growth potential, he thinks the board would hold out for at least $120 a share, or $52 billion. The stock closed Thursday at $97.92.
Bayer’s market capitalization is about $90 billion; BASF’s is $70 billion. Absorbing Monsanto would require a lot of debt or a considerable amount of share dilution, either of which would be out of character for the conservatively managed German businesses.
“We’ll see,” said Stafford. “If Bayer can offer a really nice price for Monsanto, maybe management might reconsider. I’m not sure the price is going to be high enough.”
For longtime Monsanto watchers, this takeover talk creates flashbacks to 1999, when Monsanto was bought by drugmaker Pharmacia & Upjohn. Pfizer later acquired Pharmacia and didn’t want the agriculture business, so it spun Monsanto off as an independent company.
The old Monsanto was in play largely for two reasons: It made the blockbuster drug Celebrex, which bigger companies coveted, and it had invested billions of dollars building its seed business, which was slow to pay off.
The new Monsanto, by contrast, can deal from a position of strength.
Its seed traits are in 80 percent of the corn and 90 percent of the soybeans grown in the U.S., and it has new products that should keep revenue growing for years.
Stafford thinks the company can do just fine on its own. “That’s maybe one of the misconceptions out there that these companies need to consolidate,” he said. “I don’t think things are so bad in the ag industry, and the long-term growth products are intact.”
Monsanto CEO Hugh Grant has made similar comments. On April 6, he told analysts that the company was focusing on research and on commercialization deals and would “no longer see large-scale M&A as a likely opportunity.”
You can take that as a “no” to overtures from Bayer, BASF or any other big player. For St. Louis’ sake, let’s hope he sticks to that answer.
David Nicklaus • 314-340-8213
@dnickbiz on Twitter
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