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Even though German chemical and drug company Bayer has sweetened the pot in its attempt to win seed giant Monsanto, analysts suggest the U.S. company's board is likely to reject the roughly $65 billion offer and could pursue other transactions such as combining with BASF's agro-chemicals unit.
On Thursday, Monsanto acknowledged that it received a revised, non-binding proposal from Bayer, and the St. Louis-based company said its board would "review the proposal, in consultation with its financial and legal advisors."
Monsanto declined comment on a Bloomberg report that the world's largest seed company is exploring the purchase of BASF's ag-solutions business as an alternative transaction.
"By engaging in conversations with BASF, the message to Bayer is you either have to give us a better price or we may consider doing something with BASF, " said Chris Kapsch, an analyst at BB&T Capital Markets. "I don't think they believe selling for $125 (per share) today is in the best interests of shareholders... and I do believe they are still considering being a consolidator and not a consolidee."
BASF is a legacy player in Dicamba herbicide, which is used to kill weeds. Since weeds are becoming increasingly resistant to Monsanto's Roundup product, the addition of the Dicambra to Monsanto's portfolio could be a big benefit to the seed company.
Kapsch said he "could see a little extra motivation to do something with Monsanto because the eventual commercialization of seeds with the Dicambra tolerance trait. "
Bayer's new all-cash offer, which was lifted to $125 a share from $122 a share, was verbally given to Monsanto on July 1, but formally submitted to the U.S. company over the past weekend, Bayer said in a press release Thursday. It also includes a $1.5 billion breakup fee, which would be triggered if the deal gets blocked by government regulators.
"Bayer remains confident in its ability to obtain all necessary regulatory approvals in a timely manner given complementary geographic and product portfolios," the company said in a release. "Bayer believes that its offer fully captures the intrinsic value of Monsanto, and shares the synergy benefits that the combination would create."
The latest offer represents a premium of 40 percent over Monsanto's closing share price on May 9, 2016, the reference date for Bayer's initial offer.
Monsanto shares closed Thursday up 3 percent, or $3.09 a share, at $104.22, significantly below the new bid.
Several analysts said there's little chance the Bayer-Monsanto combination would gain approval from regulators.
"We're on record saying we don't think there's more than a 10 percent chance that these two companies are coming together," said Mark Connelly, an analyst at CLSA Americas. "We're in an environment where Washington has been blocking a lot of deals lately."
Connelly said the $1.5 billion breakup fee "isn't adequate for that risk."
As for the board of Monsanto, Connelly doesn't expect they are under much pressure to accept the bid.
"They are under pressure to start delivering on promises, and it's been a long time since they've done that," he said.