A Sale Of Bayer's CropScience To Monsanto Is Unlikely, JPMorgan Warns

Bayer AG (ADR) BAYRY has reportedly received a bid for its CropScience segment. A new report from JPMorgan Cazenove outlined the offer's origin as from Monsanto Company MON, supported by a Reuters report.

Despite the likelihood that Monsanto's approach will bolster Bayer in the short term, JPMorgan does not expect the sell out to go through.

"CropScience is a key part of the group, which Bayer wants to build," the analysts stated. "We believe Bayer is unlikely to sell out to Monsanto, but other creative combinations could be acceptable."

Related Link: Goldman Warns Of Monsanto Sell, At Odds With Wall Street

Why ‘Unlikely'

JPMorgan highlighted the following as reasons the offer was likely to be turned down:

• Proposed Value Lacks Appeal: "Although we believe Bayer would be very interested in the combination of its CropScience business with Monsanto, selling out is unlikely to be on the agenda, particularly not at the 10.2X 2017E EBITDA implied by the proposed value highlighted in Friday's Reuters article."
• Continued Growth In Agrochemical Market Would Be Stunted: "Not only would this value not price in any of the likely synergies, and is significantly below recent deals in the sector […] but sale of the business would not allow Bayer to participate in continued growth of the Agrochemical market, which we believe it is keen to do."
• Little Interest In Joint Ventures: "Previously Bayer has not been interested in joint ventures given the complexity they bring; however, in the case of a potential combination with Monsanto, the potential creation of a market leader might mean that these concerns were set aside."

At this time, neither Monsanto nor Bayer had commented on the proposal.

JPMorgan currently rates Bayer at Neutral with an attached price target of €111.00.

The firm justified its rating and valuation by saying, "We see less scope for Bayer to outperform in 2016. We see limited catalysts for the pipeline […] In the short-term a focus on the SOP valuation could yield upside to current levels."