Monsanto Reportedly Cultivating BASF Agricultural Unit Deal
Monsanto (MON) is reportedly contemplating the purchase of the agricultural solutions division of Germany's BASF (BASFY) as talks with bidder Bayer (BAYRY) - Get Report continue.
Bloomberg reported that an acquisition of the business is one of several transactions Monsanto is exploring. If a deal results, the Ludwigshafen, Germany-based seller would likely receive Monsanto shares in exchange for the unit, the news outlet said.
BASF declined to comment and Monsanto couldn't immediately be reached for comment.
News of the talks follow Monsanto CEO Hugh Grant's comments on June 29 that the company was talking to Bayer but also exploring various alternative transactions to the $62 billion bid, which Monsanto has said is too low.
At the time, BASF was widely seen as Monsanto's most likely deal partner, given that Dow Chemical (DOW) - Get Report and DuPont (DD) - Get Report are already working on a complex $130 billion transaction, while Syngenta (SYT) is working to close its $45 billion-plus takeover by China National Chemical, or ChemChina. Dow Chemical is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio.
But Bernhard Weininger, an analyst at Independent Research in Frankfurt, said the agricultural solutions transaction is unlikely to happen.
"BASF has already said that it wants to hold onto the business and build it up with smaller purchases, including possibly businesses that DuPont, Dow and Syngenta have to divest. I see it more likely that Monsanto wants to get to a better position so it can say, 'We have other alternatives.'"
Monsanto shares closed Wednesday down 1.2% at $101.13. By comparison, they closed at $102.96 on June 29, when CEO Grant's comments about alternative transactions eclipsed disappointing quarterly earnings that came in 10% below analysts' expectations. The Bayer offer was worth $122 per share.
"The other side of the story is Monsanto shareholders," added Weininger. "Most would not see a takeover by Bayer as negative, but for Monsanto to pay BASF with new shares would be seen as negative," said the analyst, who has a neutral recommendation on BASF shares.
BASF has so far been conspicuously absent from the current crop of multi-billion-dollar chemical-sector mergers, though last month it agreed to buy a coatings business from Albemarle (ALB) - Get Report for $3.2 billion.
In its report, Bloomberg said the discussions are at an early stage, and no final decisions have been made. The news outlet also said Monsanto is still talking with Bayer.
BASF's agricultural business generated €5.82 billion ($6.5 billion) in revenue last year and had earnings before interest and taxes of €1.08 billion.
BASF shares were up 3.2% at €71.41. Bayer shares edged up 0.5% to €93.32.