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Monsanto (MON), Syngenta (SYT) Deal Likely to Get Done at Higher Price, Says Deutsche Bank

May 8, 2015 11:24 AM EDT
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Price: $3.28 -4.09%

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    8 Buy, 8 Hold, 1 Sell

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    Up: 13 | Down: 11 | New: 11
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Earlier Syngenta (NYSE: SYT) rejected a CHF449 offer from Monsanto (NYSE: MON). Syngenta said the offer fundamentally undervalues Syngenta's prospects and underestimates the significant execution risks, including regulatory and public scrutiny at multiple levels in many countries.

Monsanto said the proposal would provide Syngenta shareholders with a very attractive premium and significant further value creation through ongoing ownership in the combined company.

Analyst Virginie Boucher-Ferte of Deutsche Bank continues to think a deal will get done, but at a higher price.

"We believe this deal is likely to get done but at a higher price and/or a higher cash component in order to better take into account the execution risk," said Boucher-Ferte.

"Even at CHF 500/share, we would expect the deal to be EPS accretive for MON (6% in Y1, 13% in Y2) due to the significant synergy potential (we estimate $1bn, 7% of Syngenta sales, above and beyond the new $1bn cost-cutting programme at Syngenta), the low Swiss corporate tax rate MON could benefit from (Syngenta’s tax rate at c16% vs. 28% for MON) and low interest rates. Assuming an offer price of CHF 500 and incl. 100% of the synergies would imply multiples of 17x 16 P/E and 12x 16 EV/EBITDA. We believe this would be acceptable for MON currently on 18x 16E P/E," added the analyst.

"As previously stated, we believe that the regulatory risks cited by Syngenta are not insurmountable," continued Boucher-Ferte. "Although MON is global #1 in seeds and Syngenta #3, Syngenta’s mkt share is relatively small at c8% vs. c25% for MON. Even if there would undoubtedly be some antitrust issues in some countries/regions for some crops as seeds is a regional market (corn & soybean seeds in the US & Brazil, Fruits & Veg seeds in Europe would be the most obvious ones)."

For an analyst ratings summary and ratings history on Syngenta click here. For more ratings news on Syngenta click here.

Shares of Syngenta closed at $77.00 yesterday.



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