(REUTERS) German drugs and crop chemicals group Bayer has offered to buy U.S. seeds company Monsanto for $62 billion in cash, defying criticism from some of its own shareholders in a bid to grab the top spot in a fast-consolidating farm supplies industry.
The unsolicited proposal, which includes debt, would be the largest foreign takeover by a German company if accepted.
The move, which would eclipse a planned combination of Dow Chemical and DuPont’s agriculture units, comes just three weeks after Werner Baumann took over as Bayer CEO, and was condemned by a major shareholder as “arrogant empire-building” when news of the proposal emerged last week.
Giving details for the first time, Bayer said on Monday it would offer $122 per share, a 37 percent premium to Monsanto’s stock price before rumors of a bid surfaced.
“We fully expect a positive answer of the Monsanto board of directors,” Baumann told reporters on a conference call, describing criticism from some investors as “an uneducated reaction in the media”, driven by an element of surprise.
Monsanto, which said last week it had a received an approach from Bayer but gave no details, has yet to comment on the offer. The U.S. company’s shares jumped 9.5 percent to $111.17 in pre-market trading.
Baumann is staking his claim as the global agrochemicals industry races to consolidate, partly in response to a drop in commodity prices that has hit farm incomes and also due to the growing convergence between seeds and pesticides markets.
ChemChina is buying Switzerland’s Syngenta for $43 billion after Syngenta rejected a bid from Monsanto, while Dow and DuPont are forging a $130 billion business.
German chemicals group BASF has also been exploring a tie-up with Monsanto but is seen as unlikely to counter bid, sources close to the matter have said. BASF declined to comment on Monday.
Shares in Bayer, which had already fallen 14 percent since rumors of a bid emerged last week, dropped as much as 3.6 percent on Monday to a new 2-1/2 year low of 86.3 euros.
The offer values Monsanto at 15.8 times its earnings before interest, tax, depreciation and amortization for the year ended Feb. 29.
Markus Manns, a fund manager at Union Investment, Bayer’s 14th biggest investor, said a deal made sense but not at any price.
“The price that has now been disclosed is at the upper limit and it is just about economical. Should it rise further, which is to be assumed, the takeover will become increasingly unattractive,” he said.
Equinet analyst Marietta Miemietz, who has a ‘buy’ rating on Bayer stock, said: “While the leverage appears to be manageable from a (credit) ratings perspective, we believe that it would curtail Bayer’s strategic flexibility in the Healthcare space.”
Baumann said Bayer would continue to develop its healthcare business, which includes stroke prevention pill Xarelto and aspirin, the painkiller it invented more than a century ago.
“We are not feeding Peter by starving Paul here,” he said, adding no asset sales were planned to help pay for the deal.
Bayer said it would finance the bid with a combination of debt and equity, primarily a share sale to existing investors. Equity would account for about a quarter of the deal value.
The German company expects synergies to boost annual earnings by around $1.5 billion after three years, plus additional future benefits from integrated product offerings, a reference to Bayer’s push to combine the development and sale of seeds and crop protection chemicals.