Monsanto (MON) Pressured to Act Following Recent Ag-Chem Deals, Says Deutsche Bank

Deutsche Bank analyst Tim Jones expects more big deals involving European Chemicals companies. Earlier ChemChina offered to acquire Syngenta (NYSE: SYT) for $43 billion, putting pressure on other like Monsanto (NYSE: MON) and others to act. Jones thinks Monsanto could now look to the two remaining businesses in agchems, Bayer and BASF.

"Pressure will be acute on Monsanto now following this deal with ChemChina/Syngenta and the merger of the ag-related businesses of Dow/DuPont (this combined entity will be bigger than Monsanto and, crucially, will have access to seeds, traits and agchems). Monsanto could now look to the two remaining businesses in agchems to consolidate (Bayer, BASF) as both would fit well with Monsanto," said Jones. "However, currently neither Bayer nor BASF have publicly indicated any desire to exit these businesses, although we suspect that for BASF (and perhaps Bayer) should a large deal in other parts of their portfolios present themselves, these agchem businesses could be monetized relatively easily."

The analyst continued, "BASF – like most European names – remains underweight the North American region. With the mix of US activism and consolidation we see many further potential opportunities for US deals in which BASF could play a major part. The combination of the Dow/DD business could create assets attractive to BASF (the more specialty assets) and allow the group to undertake a more transformational deal. Financing for such a large deal may require mgmt to look to do more with the conglomerate structure with the ag business and potentially Oil & Gas (a demerger of Wintershall in a more “normal” oil price environment, a sale of the pipeline assets) are options but there are others. While mgmt conservatism may persist we do note that mgmt is under increasing pressure to drive group-wide profit growth and create further shareholder value. Therefore, we see potential for increasing visibility of the start of a longer-term unwinding of the conglomerate structure over the coming 12m."

Jones added, "More broadly within European chemicals we see Evonik (and BASF) as the biggest potential buyers of assets (most likely within North America) with Clariant, Croda, JMAT, and Symrise as the names that look the most vulnerable to possible take over/consolidation based on asset quality, market-share positioning and/or size. We note that there have been widespread media reports on all four of these names previously reported on Reuters/Bloomberg."

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