(The following is FOX Business’ Charlie
Gasparino’s originally published story, reported
ahead of the deal, now updated with latest details.)
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German chemical giant Bayer has signed an agreement to acquire U.S. seed behemoth Monsanto (MON) in an all cash deal worth $66 billion.
The deal comes after months of wrangling between the two companies. Bayer has agreed to pay $128 per share.
The deal terms includes a significant breakup fee of $2 billion that Bayer would pay to Monsanto if the transaction falls through due to U.S. and/or European anti-trust concerns that analysts say will be raised as regulators take a closer look at the combined companies.
The deal combines St. Louis-based Monsanto, known for its genetically modified crop seeds, and Bayer, the German manufacturer of a wide range of pesticides as well as aspirin. When putting the two together, it creates an agricultural giant with a specialty in seeds and pesticides and annual sales estimated at $67 billion.
The announced merger would be the biggest deal of 2016 and after Monsanto rejected two previous lower offers by Bayer. But even as Monsanto held out for a higher or other bid the reality of its business began to hit home; commodity prices have been hammered in recent years, thus taking a chunk out of Monsanto’s stock price that traded as high as $125 a share in February of last year. Today it is hovering around the $107 level.
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The deal is also a gamble for Bayer’s chief executive Werner Baumann, who despite some resistance from investors continued to push for the Monsanto transaction. Baumann has made the case to investors and analysts that acquiring Monsanto is key to Bayer’s growth strategy, though many worried that the company would add too much debt if it paid close to $130 a share.
Even with both parties agreeing on a final price, the deal would still run into regulatory scrutiny, analysts and investors predict. The share price of Monsanto remained stuck well below Bayer’s offer even as the German chemical giant upped its bid from its initial price of $122 per share in May, indicating that investors believed even a transaction approved by both company’s boards would run into regulatory hurdles.
The European Commission and U.S. Department of Justice have been keeping a close eye on the negotiations and now that they’ve come to an agreement, the federal regulators will certainly take a close look at any possible anti-trust issues that might arise from combining two of the largest companies in this agriculture business.
Those same regulators are currently investigating other potential mergers. DuPont (DD) and Dow Chemical (DOW) agreed to a deal in December but the closing has been delayed until early 2017 after the European Commission opened an investigation. The same can be said for a possible merger of Syngenta (SYT) and ChemChina which are also struggling with global regulators.