Daily Management Review

How Bayer-Monsanto Deal Script was Rewritten by Four Words


05/29/2016




How Bayer-Monsanto Deal Script was Rewritten by Four Words
Just four words, "there is nothing there", were used by Monsanto Co President Brett Begemann when asked how the world's largest seed company he helps lead might fit with German drugs and crop chemicals group Bayer AG by a small group of investors last week.

The disclosure of Bayer's confidential, $62 billion bid for Monsanto, the largest all-cash corporate takeover offer on record was made after a series of events were set off leading to the disclosure after those four words were said by him on the sidelines of a New York conference.

Two days before media reports surfaced about Bayer considering a bid, a confidential acquisition proposal was sent to Monsanto on May 10 by Bayer.

As is the norm for many corporations that prefer to negotiate deals in private and only tell Wall Street if they manage to come to terms, neither of the companies commented on whether any talks were taking place.

But Begemann simply declined to comment at the May 18 conference. According to a person with knowledge of the situation there were concerns with Monsanto's securities lawyer who feared that the reply could be interpreted as a denial that any talks were going on.

Monsanto issued a statement a few hours after Begemann's comment to acknowledge that Bayer had approached the company about a possible takeover to avoid triggering SEC scrutiny as the U.S.

Securities and Exchange Commission has strict disclosure rules to protect investors from being misled by companies.

Bayer soon followed with its own statement.

According to sources with knowledge of the talks, Bayer's deliberations over how much it can pay was weighed on by intense investor scrutiny towards the negotiations.

The SEC declined to comment on whether it is looking into Begemann's remark. Monsanto and Bayer also declined to comment,.

Peter Henning, a law professor at Wayne State University in Michigan said that since Begemann’s answer was open to interpretation, he came "close to a violation but probably not enough" for the SEC to bring a case.

Henning added that investors could also get the message that Monsanto and Bayer had not come to a definitive agreement from Begemann's statement.

As investors fretted over the impact of such an acquisition on its strategy and balance sheet, there was a fall of 10 percent in the shares of Bayer on the day after the company confirmed the takeover approach.

"Because of the Monsanto President’s remark, Bayer’s CEO now has to fight a battle on two fronts, negotiating a deal with Monsanto while also trying to keep his shareholders onboard. It can be an easier pitch to investors when they know they can no longer influence negotiations, and a deal is presented as fait accompli," said Erik Gordon, a professor at the University of Michigan's Ross School of Business.

Following all the debacles over the potential deal after Begemann’s comments, a source said that the two companies will now try to carry out negotiations privately, without making further statements until there is an outcome since Monsanto rejected Bayer's offer on Tuesday but agreed to hold further talks with Bayer to see if they can agree on better terms.

(Source:www.reuters.com) 






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