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The risk arbitrage market does not seem to be buying that there is another option for Monsanto Co. (MON) than a sale to Bayer AG.

Monsanto has been suggesting there might be an alternative in the wings to the Bayer $58 billion stock merger offer that was raised Tuesday to $127.50 from an initial offer in May of $122 per share. That offer subsequently was bumped to $125.

While the expectation had been that Monsanto was asking for $135 per share, arbs are expecting the situation to end with a definitive agreement in the $129 to $130 range.

The prospects of another deal, either a spoiler bidder or some restructuring alternative are remote, arbs said.

There is some possibility that the final price could break $130 given that Bayer has only gone up about 5% from its initial public offer, an arb said. Another 5% bump would not be out of keeping with how unsolicited offers come to completion, which could get you to $134, the arb said. But companies with a German shareholder base have typically been reserved in unsolicited approaches and the Bayer base reportedly has some hesitations about the approach, he said.

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Bayer Tuesday confirmed "advanced negotiations with Monsanto concerning a proposed transaction. While key terms and conditions have not yet been agreed, Bayer would be prepared to provide a transaction consideration of $127.50 per Monsanto share only in connection with a negotiated transaction. There can be no assurance that the parties will enter into an agreement."

A deal would be expected to take at least a year to pass through the regulatory process in the U.S. and Europe.

Monsanto shares traded essentially flat Tuesday on the increased offer from Bayer, reflecting a dimming hope for a bid north of $130 per share. At $107.50, Monsanto traded at a spread of $20, or 19%, to the current proposal. Without dividends, that represented an annualized return of about 16% to an Oct. 31, 2017 deal close. One arb speculated that with a definitive agreement that spread would narrow to roughly 10%, allowing for timing and antitrust risks.

Shares were up trading at $106.23 midday Wednesday.

Regardless of completion risks, the deal is doable, with BASF AG already indicating an interest in purchasing divestitures required to get a deal done, an arb said.

It sounds like there is a merger agreement under negotiation, which tells you the seller is open to a deal, at a price, which seems close, and under the right protections as far as a break-up fee goes, which apparently is also under negotiation, an arb said. Since this has been going on for several months, that suggests that a deal is likelier to happen than not. Monsanto shares are not that rich at this juncture, but certainly don't suggest the market expects a competing offer to the Bayer approach, the arb said.

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