'Bayer Doesn't Need Monsanto, But We Can't Rule Out A Bid,' Bernstein Says

According to a Bloomberg report, Bayer AG (ADR) BAYRY “is exploring a potential bid for U.S. competitor” Monsanto Company MON.

Bernstein’s Jeremy Redenius maintained an Outperform rating on Bayer with a price target of €125, while maintaining an Underperform rating on Monsanto with a price target of $80.

Bayer-Monsanto

Redenius mentioned that Monsanto’s stock rose 9 percent following the Bloomberg report, while Bayer’s shares declined 5 percent.

According to the report, Bayer “has held preliminary discussions internally and with advisers about buying Monsanto, which has a market value of almost $40 billion.”

Redenius estimates the deal would be roughly breakeven on the EPS in year one or 2017 and slightly accretive in the years after that, assuming an offer price of $108 per share.

Redenius expects Bayer to pay for a part of the deal in cash, with a debt raise of €15 billion, with the rest of the acquisition being paid via equity issuance.

Related Link: Monsanto Acquisition Talk All 'Just Speculation,' Piper Says Watch For Selling Pressure Next Week

What The Combination Means

“Based on our previous benchmarking analysis for synergies within the pesticides and seeds businesses, we assume synergies of $1.5bn by 2020, approximately 10% of Monsanto’s top-line,” the analyst mentioned.

In addition, Redenius expected limited anti-trust issues, and pointed out that the overlap between Bayer and Monsanto in vegetables and cotton seeds might need some divestiture to take care of anti-trust concerns.

“We also see limited concerns for crop protection chemicals, except between Monsanto's glyphosate and Bayer's Glufosinate,” Redenius said.