Bayer's Monsanto Acquisition Unlikely To Happen, Says Citi

Citi’s P.J. Juvekar believes the acquisition of Monsanto Company MON by Bayer is unlikely to occur, given the potential synergies, divestitures needed, regulatory concerns and more.

Juvekar maintains a Neutral rating on Monsanto, with a price target of $94.

Synergies

The analyst believes that given the expectations for Monsanto’s multiple, the expected value of the transaction would equate to about $65 billion or $130 per share.

On the other hand, the synergies are expected in the range of 2–3 percent of the combined entity’s sales, which equates to $1.3 billion.

Related Link: Bernstein Still Thinks Bayer-Monsanto Takeover Is A Huge Stretch

In addition, Juvekar mentioned, “Bayer’s tax rate is roughly 24 percent and MON’s tax rate in the US is 25–26 percent. We do not anticipate significant tax savings if the deal were to move forward.”

Regulatory Concerns

The analyst also pointed out that there was a meaningful overlap in the cotton seed business of the two companies.

Monsanto had to divest its own cotton business when it acquired Delta and Pine Land in 2006. This cotton business had been bought by Bayer at that time

“As a result, we think one of the cotton franchises would have to be divested. Other than cotton, there is not much overlap in row crop seeds, although vegetables could receive some scrutiny,” Juvekar noted.