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Sydnee Gatewood
Sydnee Gatewood
Articles (281) 

Monsanto Agrees to Bayer’s Proposal

Merger would be largest foreign takeover by a German company

September 15, 2016 | About:

A proposed deal from Bayer (BAYRY) to buy Monsanto (NYSE:MON) was approved Wednesday. The deal will consolidate two of the world’s six agricultural giants.

Bayer’s $66 billion takeover of the company ends months of negotiations with its third offer, making it the largest all-cash deal on record as well as the largest-ever foreign corporate takeover by a German company. Bayer is paying $128 per share.

Although the deal has been approved by Monsanto, the proposed merger will now face a lengthy regulation process in the U.S., Canada, Brazil, Europe and elsewhere. According to Hugh Grant, CEO of Monsanto, the companies will have to file around 30 jurisdictions for the merger.

If the deal is blocked by regulators, Bayer will pay Monsanto $2 billion.

Bayer, a German health care and agricultural company, has a market cap of $84.6 billion with an enterprise value of $107.6 billion. It has a price-earnings (P/E) ratio of 16.8 with a forward P/E of 11.7. Its price-book (P/B) ratio is 3.4, and its price-sales (P/S) ratio is 1.6.

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GuruFocus ranked Bayer’s financial strength 5 of 10. Its Piotroski F-Score of 7 indicates the company has a healthy financial condition. Its Altman Z-Score is 1.9, placing it in the grey zone. The company’s cash-debt ratio of 0.1 is below the industry median of 3.2.

GuruFocus ranked the company’s profitability and growth 8 of 10. Its operating margin is 11.5%, and its net margin is 9.7%. Its return on equity (ROE) is 19.5%, and its return on assets (ROA) is 5.9%, which rank higher than 82% and 63% of other companies in the industry.

The DCF Calculator gives Bayer a fair value of $84.02; it was trading at $102.28 on Thursday.

On the other hand, Monsanto, an American company that provides seeds, herbicides, precision agriculture products and biotechnology traits to farmers, has a market cap of $46.5 billion with an enterprise value of $55.8 billion. It has a P/E of 43.2, a forward P/E of 22.1, a P/B of 9.2 and a P/S of 3.6.

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GuruFocus ranked the company’s financial strength 5 of 10. Its Piotroski F-Score of 4 indicates the company has a stable financial condition. Its Altman Z-Score is 3.7, placing it in the safe zone. Monsanto’s cash-debt ratio is 0.12, below the industry median of 0.6.

GuruFocus ranked Monsanto’s profitability and growth 8 of 10. Its operating margin is 15.6%, and its net margin is 7.7%. Its ROE is 18.3%, and its ROA is 4.9%, ranking higher than 81% and 60% of other companies in the industry.

The DCF Calculator gives Monsanto a fair value of $69.18; it was trading at $105.88 on Thursday.

The deal comes amid a global supply surplus of grain, causing grain prices to linger at their lowest levels in years and farm incomes to fall. The merged company would be, by sales, the largest supplier of seeds and pesticides in the world.

Among the gurus, PRIMECAP Management (Trades, Portfolio), Larry Robbins (Trades, Portfolio) and Frank Sands (Trades, Portfolio) have the largest positions in Monsanto. In total, 29 gurus have holdings in Monsanto.

Ken Fisher (Trades, Portfolio), Vanguard Health Care Fund (Trades, Portfolio) and Signature Select Canadian Fund (Trades, Portfolio) are the only gurus invested in Bayer.

The merger is expected to close by the end of 2017.

Disclosure: I do not own stock in any companies mentioned in the article.

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About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and an MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneeg

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GuruFocus has detected 4 Warning Signs with Bayer AG $BAYRY.
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