What happened?

Bayer's (OTC:BAYR.Y) pursuit of American agribusiness peer Monsanto (NYSE:MON) has hit an early roadblock. The latter company formally rejected the former's initial all-cash, $122-per-share bid to purchase it.


In the press release announcing its decision, Monsanto quoted its CEO, Hugh Grant, as saying that Bayer's offer "significantly undervalues our company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition." The company did not elaborate further.

But Monsanto clearly left the door open for another, presumably higher bid. It hastened to say that it is "open to continued and constructive conversations to assess whether a transaction in the best interest of Monsanto shareowners can be achieved."

Does it matter?

Bayer was happy to hear those words. In response, it fired off a press release stating that it "looks forward to engaging in constructive discussions with Monsanto regarding the proposed transaction."

Of course it does. Owning Monsanto would make Bayer a global agribusiness powerhouse by combining the American company's very strong position in that market with its own operations.

But as badly as management might want a tie-up, it's clear that shareholders are already uneasy with the potential cost. Several were cited by The Wall Street Journal as considering the expense of the opening bid a "stretch." Bayer's shares have traded down over 12% since the company's interest was first made public two weeks ago.

At this early stage, the Bayer/Monsanto takeover story is starting to look eerily like the most recent monster agribusiness acquisition play. Ironically, Monsanto was the pursuer in that case and a European company the prey, specifically Syngenta (NYSE: SYT). In spite of a fairly generous offer, Syngenta not only initially turned down Monsanto, it also rejected subsequent overtures. Ultimately, Monsanto halted its pursuit, and Syngenta found another potential parent, ChemChina.

Bayer does seem determined to win Monsanto's hand in marriage; the questions are if it's willing to fatten the bid sufficiently and whether its shareholders will accept the added expense. Monsanto's stock price -- and its future -- will depend on the answers. We're likely only at the beginning of this saga, so stay tuned for more developments.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.