German pharmaceutical and chemical company Bayer (BAYRY) on Monday pressed on with its controversial takeover run at Monsanto (MON) , laying out a raft of information about an offer worth $62 billion as it attempted to win over skeptical investors.
Following what it called "a detailed review over a long period," Bayer said it has offered $122 per Monsanto share in cash. That's equivalent to a 37% premium over the undisturbed price on May 9, and to multiple of 15.8 times Ebitda in the 12 months to Feb. 29.
It said the combination would boost its earnings per share by a mid-single digit percentage in the first full year, rising to double digits after that. The acquisition would generate synergies of $1.5 billion after year three, with more thereafter, Bayer claimed.
The Leverkusen, Germany inventor of Aspirin insisted the purchase would fit with its identity as a life science group rather than divert attention from its pharmaceuticals, consumer health and animal health operations. It would position it better to take advantage of a surge in demand for agricultural chemicals and specialist seeds as the world's population expands by an estimated 3 billion by 2050, Bayer said.
"We have always said that crop science is an integral part of our life science portfolio," Bayer said.
"It would be a compelling opportunity to develop leadership positions in all our crop science businesses and to reinforce Bayer as a life science company."
Bayer said it has no plans to make divestments to pay for Monsanto but instead would finance three quarters of the purchase with debt, with the rest from the proceeds of a share sale. Bayer said it is targeting an investment grade credit rating after closing.
The offer doesn't carry a financing condition, said Bayer, which added that it is confident of getting regulatory approval.
While Bayer is confident, Jim Cramer, TheStreet's founder is not so convinced the deal is a sure-shot from a regulatory perspective.
He pointed to a recent series of articles published by TheStreet and The Deal, Big Business vs Big Government, which shows a pattern of increased regulatory actions challenging mergers that dates back to the Reagan administration.
"If that's the case in the crop protection division, you get a Bayer merging with Monsanto, that would create a hammerlock in crop protection. No way the farmers will stand for it," Cramer said.
"This is a Justice Department that's very inclined to veto whatever is most talked about," Cramer said.
Bayer said it was ready to proceed immediately with due diligence. It urged Monsanto, which is led by CEO Hugh Grant, to the negotiating table, while leaving open the prospect of a unilateral offer.
"It is our preference to work together with Monsanto to reach a mutually agreeable negotiated solution," Bayer said.
Bayer's shares have dropped more than 9% since both companies confirmed news of the Monsanto approach in the early hours of Thursday. They closed on Friday at €87.50, giving the company a market value of just over €74 billion ($83.1 billion).
By early afternoon in Frankfurt on Monday the shares were down another 3.5% at €86.54, translating into a market value of €71.6 billion.
Writing before Bayer's confirmation of its $62 billion bid, Jefferies International Ltd. analysts noted that financing constraints could hamper a cash/debt deal.
"Bayer's balance sheet is already stretched," they wrote, citing combined net debt and pension liabilities of €30 billion as of the end of the first quarter.
Monsanto shares on Monday were trading up almost 5% to $106.32 per share.
The St. Louis company last fall abandoned a $44 billion-plus attempt to take over Switzerland's Syngenta AG after a series of unsolicited proposals.
Syngenta earlier this year agreed to a Sfr44.6 billion ($45.2 billion) bid from China National Chemical, following discussions with several peers and after rivals Dow Chemical (DOW) and DuPont (DD - Get Report) agreed on a $130 billion fusion. Of the major chemicals companies with crop science interests BASF, which held talks with Syngenta, is now conspicuously without a potential partner.
Bayer said a combined Bayer/Monsanto would be the world agricultural chemicals and seeds leader, and would have had €23.1 billion of sales last year, compared with €14.8 billion for China National Chemical/Syngenta, €14.6 billion for Dow/DuPont and €5.8 billion for BASF.