Bayer sweetens Monsanto bid as talks enter final stretch

September 5, 2016 7:52 PM EDT

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By Ludwig Burger, Arno Schuetze and Greg Roumeliotis

FRANKFURT/NEW YORK (Reuters) - German pharmaceutical and crop chemicals manufacturer Bayer AG says talks with Monsanto Co have advanced and it is now willing to offer more than $65 billion, a 2 percent increase on its previous offer for the world's largest seeds company.

"Both sides are gradually nearing consensus," one person familiar with the matter said.

Monsanto has also agreed to open its books for Bayer to conduct due diligence checks on the company's business, two sources close to the matter said.

Bayer's previous offer was already the largest all-cash takeover bid on record with a deal with Monsanto aimed at giving the German company a shot at grabbing the top spot in the fast-consolidating farm supplies industry, combining its crop science business with Monsanto's strength in seeds.

Bayer now says it is prepared to offer $127.50 per share in a negotiated deal, up from its previous offer of $125 per share.

But German daily newspaper Rheinische Post also reported late on Monday that an offer of $130 per share may be necessary to get a deal with Monsanto "in a swift and friendly way."

Bayer was still considering all options regarding Monsanto, including striking a friendly deal, making a hostile bid or pulling its offer, a person familiar with the matter told Reuters.

Bayer's shares were down 0.25 percent at 94 euros by 0934 GMT on Tuesday. Monsanto's shares last traded at $107.44 and analysts at brokerage Equinet said Bayer has now effectively capped its Monsanto bid.

"We infer from Bayer's statement that failure to agree a deal at $127.50/share could imply a risk to Monsanto shareholders of either a hostile bid at a lesser consideration, or no deal at all," they said in a note.

Analysts from Baader Helvea disagreed. "We still expect a bid per share in the $130-135 range before Monsanto comes to the table. As such, we continue see the Bayer shares remaining under pressure as the negotiations continue," they said in a note.

In a brief statement, Monsanto said on Monday it had been engaged in "constructive" negotiations with Bayer, during which it received the updated non-binding proposal of $127.50 per share in cash.

The Saint Louis-based company added that it was continuing these conversations as it evaluated Bayer's offer, as well as proposals from other parties it did not name. It cautioned that there was no certainty that any deal would occur.

Some Bayer shareholders, however, continue to criticize the proposed merger, saying it would increase Bayer's exposure to agriculture at the expense of its pharmaceutical business.

"We knew that Bayer would have to bid higher and this offer is probably getting closer to succeeding, but it doesn't change our view that it presents significant risks to shareholders," said Greg Herbert, co-manager of the Jupiter Global Equity Income Fund.

"The company will be left with a highly geared balance sheet and the management effort to integrate the two businesses could easily lead to the larger pharmaceutical business being neglected."

John Bennett of fund manager Henderson said that he opposed the revised offer.

"Bayer have backed themselves into a corner," he said in emailed comments. "The money would have been better spent buying their own stock. Alas, for shareholders, it was not to be."

In July, Bayer raised its earlier offer of $122 per share to $125 to put Monsanto under pressure to engage further.

Monsanto subsequently turned down the $125 offer, but said it was open to further talks with the German company, as well as other parties.

Reuters reported last month that Monsanto's talks with Bayer were making progress, with the latter receiving some limited access to Bayer's books.

Since then, negotiations have advanced further, with more information exchanged between the two sides and the chief executives of the two companies engaging in direct discussions, according to people familiar with the matter, who asked not to be identified because of the confidentiality of the talks.

However, while the two companies are close to reaching an agreement on price, they have yet to agree on a strategy on how to jointly tackle potential antitrust challenges, the people said.

(Additional reporting by Patricia Weiss in Frankfurt, Simon Jessop in London and Gayathree Ganesan in Bengaluru)



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