Signs Pointing Upward for Bayer Amid Solid Growth, Possible Monsanto Acquisition

The chemicals giant grew revenues in every division and upped its bid for U.S.-based Monsanto this week.
By Thomas Scarlett ,

To find the companies that offer investors the best value, you have to be willing to search worldwide. You also need to pinpoint companies that are well established in their fields but have a record of seizing opportunities. 

That's the only way to guarantee market-beating returns over the long haul.

One company that fits that description is Bayer (BAYRY) - Get Report , which has been among Europe's most dominant companies for years, but also aggressively looks for ways to expand. The company has grown revenues this year and but has also been actively seeking acquisitions that could round out the company. 

The 150-year-old, German-based chemical and pharmaceutical company is probably best known in the United States for aspirin; it once held the trademark on that name. But it also produces other widely used drugs, both prescription and over-the-counter, including Aleve, Claritin and Xarelto, consumer healthcare products, agricultural chemicals and biotechnology products, and high-value polymers.

In its 2016 first quarter, the company's revenues rose slightly, but earnings per share surged nearly 14% beating some analysts' estimates. The company's pharmaceuticals unit increased almost 16%. All the company's operating units registered gains. 

Bayer's management team has an ambitious plan to become the global leader in both pharmaceuticals and chemicals. To that end, it has been trying to acquire St. Louis-based Monsanto, a leading producer of agriculture-related chemicals like pesticides and engineered seeds. This week, Bayer upped its earlier $122 a share offer by $3. The new deal would be about $65 billion. The company also offered to pay a $1.5 billion reverse breakup fee if the deal is blocked for antitrust reasons. 

Monsanto itself is major company in the agricultural chemicals industry. Last year, Monsanto tried to acquire Swiss pesticide maker Syngenta, but was rejected and abandoned the deal.

Bayer's bid for Monsant comes as the chemicals industry consolidates and shows its tenacity to expand its market shareDow Chemical and DuPont are proceeding with their merger, although they still need approval from the European Union.

Britain's recent vote to leave the European Union, which initially caused investors to flee European equities, may turn out to be good news for dominant continental firms like Bayer. British companies will probably now have to navigate extra regulatory hurdles to access markets like Germany, France and Italy, while German rivals like Bayer will not.

Bayer's anticoagulant drug Xarelto diparticularly has done particularly well in 2016, posting sales gains of more than 30% and making inroads into new markets such as Japan.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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