Trump's apparent support for Monsanto deal makes investors
cautiously optimistic
By Christopher Alessi
FRANKFURT -- Investors in Bayer AG have taken heart from
President Donald Trump's apparent support for the German
pharmaceuticals and chemicals firm's planned $57 billion takeover
of U.S. seed giant Monsanto Co. and are cautiously optimistic the
deal will pass regulatory muster.
Bayer, which reports full-year results on Wednesday, seems to
have put the deal on firmer ground by reassuring President Trump
last month that it is committed to investing in the U.S. and
maintaining American jobs, investors and analysts said. Questions
about Monsanto are expected to dominate Bayer's results, with
analysts and investors seeking guidance on the takeover's
status.
"They are getting closer and closer to completion," said Jim
Nelson, a portfolio manager at Bayer shareholder Euro Pacific
Capital. "The meeting with Trump was an incremental positive."
Mr. Nelson said that there is "still a lot of uncertainty and we
have to see what happens with other mergers" under review by
regulators world-wide.
Bayer shares are up roughly 20% since Mr. Trump won election in
November. The company declined to comment for this article.
The Bayer-Monsanto deal is expected to face strict regulatory
scrutiny in the U.S. and Europe. It comes amid consolidation in the
industry, including planned tie-ups between Dow Chemical Co. and
DuPont Co. and China National Chemical Corp.'s takeover of Swiss
pesticide maker Syngenta Co.
Those deals are farther in the regulatory process and decisions
on them could influence regulators' view of Bayer's bid for
Monsanto, experts say.
Bayer Chief Executive Werner Baumann and Monsanto Chief
Executive Hugh Grant met with Mr. Trump in New York on Jan. 11 to
make their case for the acquisition amid uncertainty over whether
foreign corporations in the U.S.--- and megamergers in general --
could face greater scrutiny under the new administration.
The Trump team appeared encouraged by the discussion. Less than
a week later a spokesman for the then-president elect lauded the
deal and what he said was Mr. Baumann's commitment to retain
Monsanto's full workforce of 9,000 and create 3,000 new high-tech
jobs in the U.S.
Soon after, Bayer said that it had committed to add "several
thousand" new high-tech positions and planned to invest around $8
billion in new research and development in the U.S. over the next
six years.
"They've been managing it in a smart manner," said Fabrice
Theveneau of Lyxor Asset Management, a Bayer shareholder, of the
German firm's early efforts to sell the deal to Mr. Trump. "If you
can get access to the 'Big Man' directly, it obviously helps," Mr.
Thevenau said.
Markus Manns, a portfolio manager at Union Investment which is
another Bayer investor, said Mr. Baumann's meeting with Mr. Trump
indicates the president is "slightly in favor" of the deal. "There
were no negative tweets, so that's a good sign," Mr. Manns said of
Mr. Trump.
National regulators will ultimately decide the deal's fate. That
could prove more complicated in Europe where there is more
skepticism over the tie-up, said Ioannis Lianos, a professor and
head of global competition law and public policy at University
College London.
"This deal should be seen in the context of the megadeals in
this sector, " Mr, Lianos said. "When the competition authorities
see so much concentration they [become] concerned," he said. Being
the last deal to face review, the Bayer-Monsanto merger will likely
undergo greater scrutiny, he said.
The transaction would create the world's No. 1 supplier by sales
of both seeds and pesticides, creating what Mr. Lianos called a
"one-stop solution for farmers" that regulators could see as
undermining competition.
Other analysts have concluded that Bayer, a world leader in crop
chemicals, is largely complementary with Monsanto, which dominates
the seed market.
"The deal has a fair chance to succeed on the regulatory issue,"
said Lyxor's Mr. Theveneau.
Bayer filed its regulatory application with the U.S. Department
of Justice late last year and is expected to file with the European
Commission this quarter.
If successful, the acquisition of Monsanto would reshape Bayer's
portfolio around agriculture. Bayer's crop-science division would
account for roughly half of group sales, up from about 30% in 2015,
while health care would make up the other half, down from 70%.
That was initially a concern for many investors, a number of
whom openly opposed the deal when Mr. Baumann first bid for
Monsanto in May.
"We would have preferred for them to refocus on the pharma
business," said Euro Pacific Capital's Mr. Nelson. "We are somewhat
resigned to [the deal] at this point. The more time goes by, it
seems more likely it will get done."
Write to Christopher Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
February 21, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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