Monsanto, the world’s largest maker of seeds and crop protection chemicals, has reportedly opened talks with BASF about combining its agrochemicals business, seeking to stave off rival Bayer's $62 billion (€55.8 billion) bid to buy the St. Louis farm chemicals giant.
Monsanto is considering several options as alternatives to Bayer's takeover offer, including its own purchase of BASF’s agriculture-solutions business, Bloomberg reported, citing unnamed people familiar with the talks.
BASF, the world’s largest chemicals firm, would in return receive newly issued Monsanto shares, according to the report. BASF, Bayer and Monsanto officials declined to comment. Monsanto has rejected Bayer's bid as too low.
BASF’s shares jumped 3.5 percent to €71.88, or $79.89 and were up 3.2 percent at 11:03 a.m. in Frankfurt. Bayer’s shares rose 1.3 percent to €94.13. Monsanto’s shares closed down 1.2 percent at $101.13 on Wednesday.
Bayer and new chief executive Werner Baumann surprised Monsanto and angered some Bayer's shareholders in May with its bid to buy Monsanto, which has called the offer “unsolicited.”
Sources said Monsanto wants Bayer to up its bid by between $10 and $15 per share from its current offer of $122.
Bayer’s bid, which would be the biggest takeover ever by German firm, follows a wave of mergers in the chemicals industry, which is consolidating to cut costs.
U.S. rivals Dow Chemical and DuPont are merging into three new companies, and Chinese chemicals firm ChemChina bid $43-billion in February for Swiss seeds maker Syngenta. BASF last month agreed to buy surface treatment business Chemetall for $3.2 billion from U.S. peer Albemarle.
Bayer and Monsanto have continued to discuss the German company's offer, which has been criticized by some of Bayer’s shareholders as expensive and risky. But neither have reported progress since May.
“A poker game is taking place between Bayer and Monsanto, so to speak. Monsanto will try to improve and strengthen its negotiation position with the help of this report,” said Bernhard Weininger, a Frankfurt-based analyst at Independent Research.
He said that Bayer would like to perform due diligence -- looking at Monsanto's internal business records -- before deciding whether to raise its bid. Monsanto, he said, only wants to give Bayer a look at its books after it first raises its bid.
“Bayer currently is in a better position than Monsanto, judging from the recent drop of Monsanto’s shares and the not-so-outstanding earnings from Monsanto,'' Mr. Weininger said. "There is also the question of what makes most sense for Monsanto’s shareholders, who now have the option of a bid. There is shareholder pressure, which is relevant.”
Last month, when Monsanto reported lower-than-expected quarterly earnings, the company’s chief executive Hugh Grant confirmed the Bayer talks and said Monsanto was talking to several in the industry about combinations that would “increase choice for farmers across a broader set of crops, geographies and production practices.”
The U.S. agrochemical company’s board was split over which deal would be best, Bloomberg said, citing people familiar with the matter. Some executives prefer Monsanto to remain independent, while others favor taking the Bayer bid.
“It is rather unlikely that Monsanto will buy this business from BASF because BASF has always emphasized it wanted to keep the operations,” Mr. Weininger said. BASF “wants to expand the division, for instance with acquisitions, small takeovers. BASF will look what it could buy from divested operations by the combination of DuPont and Dow and the Syngenta-ChemChina tie-up.”
Earlier this year, Monsanto held talks with Bayer and BASF about potential deals after the U.S. company lost out to Chinese rival ChemChina for Syngenta, Bloomberg reported in March, citing people familiar with the matter.