Monsanto Considering “Alternative Strategic Options” to Bayer’s $62 Billion Bid

30 Jun 2016

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30 Jun 2016 --- Monsanto has appeared to edge itself further away from a possible takeover by Bayer, after its chief executive said it is considering "alternative strategic options". Hugh Grant, Monsanto chief executive, said there was "no formal update" on Bayer's blockbuster $62bn offer, which Monsanto rejected last month, but added he had "been personally in discussions with Bayer's management over the last several weeks, along with other regarding alternative strategic options".

The wording of Grant's statement, the first since rejecting the German chemical giant's bid, appeared to suggest that this does not necessarily mean that Monsanto favours being acquired but could be open to alternative strategic options, such as a joint-venture or making smaller acquisitions.

Grant continued: “We continue to recognize the potential value these types of combinations can create as they accelerate innovation and increase choice for farmers across a broader set of crops, geographies and production practices, while improving the sustainability of agriculture around the world.”

“That is why we remain open and will continue to actively engage in constructive dialogue to pursue value enhancing strategic options.”

One alternative option for the St Louis-based pesticide and seed company could be a deal with German chemical giant BASF, experts say, or carrying out smaller bolt-on acquisitions.

Speaking to the Financial Times, Jonas Oxgaard, an analyst at Bernstein, said: “I don’t think the Bayer deal ultimately will happen. Monsanto is seemingly pushing to string together smaller deals . . . which is quite frankly the smarter way of doing this anyway.”

Reuters revealed earlier this year that Monsanto had approached Bayer regarding a possible acquisition of its crop science unit.

However, Grant's comment could also be interpreted as a move to drive up a higher bid from Bayer, or flush out further bidders.

Despite a deal not been struck between Bayer and Monsanto, antitrust regulators in the EU have said they would review such a deal over competitions concerns.

Monsanto's update on a possible deal came as it disclosed its third quarter results, which fell below expectations.

Sales were down from $4.6bn to $4.2bn in the period while net profits tumbled from $1.2bn to $715m.

Monsanto has looked to cut costs amid falling profits in the agriculture sector.

Across its core Seeds and Genomics segment, sales nudged up slightly from $3.19bn to $3.2bn.

Sales of corn seeds were around level at $1.5bn, but Monsanto said it expected to grow its market share in the US in 2016, saying that 2016 will mark its second highest year of corn sales volume on record.

Corn seed sales also performed well in Argentina admit declining sector sales.

Sales of soybean were down from $835 to $693; while cotton seeds were down from $371m to $285m.

One concern for Monsanto is the EU’s refusal to approve an extension for the use of glyphosate in the EU owing to carcinogenic risks, which could threaten sales of its flagship Roundup product in the EU.

However, Monsanto said that "despite repeated delays" it was optimistic that it will receive approval from the EU.

Despite the challenges, Grant said he was optimistic about the future prospects of Monsanto.

He said: "Our long-term optimism within agriculture and our business remains. Our industry is running at a low point in the overall agriculture cycle and we’ve experienced an unforeseen level of challenges affecting our business in fiscal year 2016.”

“Today, however, we anticipate positive resolution on the horizon for several of these challenges, coupled with early signs of recovery in agriculture.”

“With the strategic changes we’ve made to our business, we’re well positioned to further strengthen our leadership role in the agricultural space through financial discipline and steadfast commitment to serving growers with new innovation.”