Shares of Monsanto (NYSE:MON) traded up last week after the agribusiness giant received a $62 billion takeover bid from Germany's Bayer. That initial offer was quickly rejected, with Monsanto CEO Hugh Grant quoted as saying that it "significantly undervalues" the company. But that's probably only the beginning of what promises to be a long dance between the two companies.
In this clip from the Motley Fool Money radio show, Chris Hill, Jeff Fischer, Ron Gross, and Matt Argersinger talk about the motivation behind the offer, the likelihood of Bayer and Monsanto to combine, and why the odds of success for a merger on such a gargantuan scale -- and in such an important industry -- are close to zero.
A transcript follows the video.
This podcast was recorded on May 27, 2016.
Chris Hill: Shares of agricultural giant Monsanto up this week, after German conglomerate Bayer made a $62 billion bid to buy Monsanto outright. Monsanto rejected the initial bid, Jeff, but they definitely left the door open.
Jeff Fischer: This would form the largest agricultural seed company in the world, with about 30% market share if the two merged, and they'd have about 24% market share in chemicals as well. It would be an absolute giant. I would be surprised if European and U.S. regulators let it go through. Chris, before the show, you were saying, "In the U.S., they didn't even let the Office Depot and Staples merger go through; how could you let this merger happen?" The market is skeptical, too. The share price is well below the offer price. Monsanto has about a $50 billion market value, and the $62 billion offer is not popping the stock that much.
Ron Gross: You know, you have a similar transaction going on in the industry, with ChemChina trying to acquire Syngenta (NYSE:SYT) out of Switzerland. They're running into some regulatory issues as well, especially here in the U.S. It'll be interesting to watch that, because that one is further along. As Jeff said, we don't even really have a deal here with Monsanto. But that one, you do have a deal. So we'll be able to continue to watch how that unfolds to get a signal of what the regulators are going to do.
Fischer: Yeah, and that's a $43 billion potential merger, China National Chemical buying Syngenta. And then you have the Dow and DuPont merger last year as well. All of these are kind of like merging Darth Vader with Darth Maul.
Matt Argersinger: Nicely put!
Hill: Just to go back to the good old Uncle Sam angle here, I would be stunned -- maybe I shouldn't be -- if this actually goes through. This would be the largest German takeover of a U.S. company ever. And as you said, Jeff, look at the deals that have been shot down. Much smaller deals, in much smaller industries, have been given the stop sign from some form of the U.S. government. So the fact that one single company -- you threw out a couple of stats there, Jeff. Eighty-three percent of U.S. corn seed sales would come under this one company if it went through. I don't know.
Argersinger: And if you want a very recent proxy, the government didn't over-explicitly come out and stop it, but Halliburton's purchase of Baker Hughes really got red flags from regulators, and that would have formed a really dominant oil services business, kind of similar to what Bayer and Monsanto would control in the seed business.
Gross: The fact that this is directly related to our food source, and there's so much controversy as it is, I think this will get double the scrutiny, and therefore it's even less likely to go through, versus if it were an office-supply company.
Fischer: It's too Orwellian, to think of one company controlling so much of our food.