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Monsanto Company (NYSE: MON) has received an unsolicited, non-binding proposal to be acquired by Bayer. Bernstein’s Jeremy Redenius maintained an Underperform rating for Monsanto, with a price target of $80.
Commenting that the deal appears to be “a big financial stretch,” analyst Jeremy Redenius mentioned that a merger followed by a spin-off of a NewAgCo may create more value. There are no comments from Monsanto, since its Board of Directors are still reviewing the proposal.
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Financial Stretch
Redenius said that the deal is only EPS breakeven, at an offer price of $108 per share, which represents a 20 percent to the undisturbed price. He added that the acquisition ROIC was unlikely to cover Bayer's cost of capital until at least 2025. “This was based on our synergy expectations of €1.5B, Bayer raising €15B in debt, with the remainder €27B coming in equity.”
The analyst believes that Bayer would have to offer a price closer to $120-%125 per share to complete the deal. This represents a premium of 35-40 percent. Even in this scenario, if Bayer is able to fund an additional €5B in cash through the sale of Animal Health, and record synergies of $2B, the deal would still be accretive by only 3-4 percent by 2020.
Rather than an outright acquisition, a merger-split similar to the Dow-DuPont deal is likely to create more value, Redenius said.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.