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Monsanto Considering Acquiring Syngenta? Here's Why A Deal Makes Sense

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Monsanto Considering Acquiring Syngenta? Here's Why A Deal Makes Sense
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  • Media outlets reported on Tuesday that Monsanto Company (NYSE: MON) is considering a new bid to acquire rival Syngenta AG (ADR) (NYSE: SYT).
  • Monsanto hosted its biennial investor event on Tuesday and Wednesday.
  • Analysts at Macquarie and Deutsche Bank are both positive on agriculture consolidation.
  • Bloomberg reported earlier this week that Monsanto is discussing internally the merits of a new offer to acquire Syngenta after the company withdrew a $46.6 billion proposed takeover in August.

    The timing of the media report coincided with Monsanto's biennial investor event, which took place on Tuesday and Wednesday.

    Related Link: Grain Expert: Monsanto's Acquisition Of Syngenta Would "Make Sense" For Shareholders

    Deutsche Bank: ‘Optimistic' On Agriculture Consolidation

    David Begleiter of Deutsche Bank commented in a note that Monsanto reaffirmed its five-year target of doubling its earnings per share by 2019. The analyst added that due to a "low-to-no growth" expectation for 2015 and 2016, the company would need to generate a 24 percent compounded earnings per share growth rate in 2017–2019 to achieve its ultimate target of $10.30 per share.

    Begleiter noted that Monsanto believes consolidation in the sector is "likely," given "the large amount of stress in the industry" due to a low commodity environment. In fact, Monsanto believes that it is "best positioned" to be the "leading consolidator" due to its leading seed business.

    "On consolidation, off-line Monsanto's CEO stated he is ‘optimistic' on Agriculture consolidation and reinforced that a crop chemical franchise is required to optimize the value of the Digital Ag platform," Begleiter wrote.

    Shares of Monsanto remain Buy rated with an unchanged $104 price target.

    Macquarie: ‘High Level Of Confidence' Of Consolidation

    H. Cooley May of Macquarie Research commented in a note that he hosted an investor meeting with Syngenta ahead of Monsanto's presentation.

    According to May, he left the meeting with Syngenta's management with a "high level of confidence" that Agchem and seed industry consolidation discussions among the "major players" are "stretching far and wide." The analyst added that Monsanto's CEO Hugh Grant "hinted" in his opening remarks that "industry consolidation is likely inevitable" and the analyst "broadly agrees."

    "We think the mixture of a farmer income setting that sits below the average witnessed a few years ago, lingering foreign currency headwinds and a strong desire to grow profits despite these issues are principle items driving industry consolidation discussions that are increasingly appearing in news reports," May wrote. "Despite formally pulling its bid for Syngenta, we think Monsanto remains on the prowl particularly and most chiefly in the area of crop protection products with strong IP."

    Shares of Monsanto remain Outperform rated with a $115 price target.

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    Latest Ratings for MON

    DateFirmActionFromTo
    Nov 2016OTR GlobalUpgradesNegativeMixed
    Oct 2016BarclaysMaintainsEqual-weight
    Sep 2016Goldman SachsUpgradesSellNeutral

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