Bayer defies critics with $62 billion Monsanto offer

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Bayer reveals $62B offer for Monsanto

German drugs and crop chemicals group Bayer has offered to buy U.S. seeds company Monsanto for $62 billion in cash, defying criticism from some of its own shareholders in a bid to grab the top spot in a fast-consolidating farm supplies industry.

The unsolicited proposal, which includes debt, would be the largest foreign takeover by a German company if accepted.

The move, which would eclipse a planned combination of Dow Chemical and DuPont's agriculture units, comes just three weeks after Werner Baumann took over as Bayer CEO, and was condemned by a major shareholder as "arrogant empire-building" when news of the proposal emerged last week.

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Giving details for the first time, Bayer said on Monday it would offer $122 per share, a 37 percent premium to Monsanto's stock price before rumors of a bid surfaced.

"We fully expect a positive answer of the Monsanto board of directors," Baumann told reporters on a conference call, describing criticism from some investors as "an uneducated reaction in the media" when deal terms were not yet known, and driven by an element of surprise.

Photos of protests against Monsanto earlier this year:

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Bayer defies critics with $62 billion Monsanto offer
MANILA, PHILIPPINES: Greenpeace Environmental activists storm the Department of Agriculture Head Offices in Manila, 20 June 2005 displaying banners denouncing BT Corn, a genetically engineered (GE) corn patented and owned by American company Monsanto. Greenpeace denounced Monsanto's claims, that the corn is increasing crop yield and reducing dependence on fertilizers after activists in their researchs revealed that BT-corn seeds cost more and require higher fertilizer input, hence damages the environment. Environmental damage is costing the Philippines at least two billion USD a year, the World Bank said. AFP PHOTO/JAY DIRECTO (Photo credit should read JAY DIRECTO/AFP/Getty Images)
SEELOW, Germany: Greenpeace activists fly a kite displaying a giant corn cob 03 May 2005 on an acre in Seelow, eastern Germany, to protest against the cultivation of genetically modified maize. According to Greenpeace, the US company Monsanto disseminated transgenic seeds of the type MON810 on the field. AFP PHOTO DDP/MICHAEL KAPPELER GERMANY OUT (Photo credit should read MICHAEL KAPPELER/AFP/Getty Images)
Greenpeace activists hang a giant protest banner at a building in Alabang town suburban Manila, 12 September 2003, where US agri-chemical company firm Monsanto's Manila head office is located. Greenpeace accused Monsanto and WTO for alleged environmental destruction and spread of genetic contamination in the Philippines following the release of genetically engineered corn in the country. AFP PHOTO JAY DIRECTO (Photo credit should read JAY DIRECTO/AFP/Getty Images)
PORTO ALEGRE, BRAZIL: Greenpeace activists protest in front of Monsanto offices in Porto Alegre, Brazil, 28 January 2005. Greenpeace activists with peasants and members of the Landless Workers Movement (MST in portuguese) attending the 5th World Social Forum, protested against the creation of transgenics by the Monsanto company. AFP PHOTO/VANDERLEI ALMEIDA (Photo credit should read VANDERLEI ALMEIDA/AFP/Getty Images)
SEELOW, Germany: Greenpeace activists put up signs reading 'Attention! Genetically modified maize' 03 May 2005 on an acre in Seelow, eastern Germany, to protest against the cultivation of genetically modified maize. According to Greenpeace, the US company Monsanto disseminated transgenic seeds of the type MON810 on the field. AFP PHOTO DDP/MICHAEL KAPPELER GERMANY OUT (Photo credit should read MICHAEL KAPPELER/AFP/Getty Images)
Activists of the online network 'Campact' protest outside the administrative court in Braunschweig, northern Germany, on April 28, 2009 against a request by US biotech giant Monsanto, against Germany's decision to ban a type of genetically modified maize, MON 810, manufactured by the company. In April 2009 German Agriculture Minister Ilse Aigner banned the cultivation of MON 810 in Germany. AFP PHOTO DDP/ NIGEL TREBLIN GERMANY OUT (Photo credit should read NIGEL TREBLIN/AFP/Getty Images)
(GERMANY OUT) Germany, Berlin: 'We are fed up' demonstration. Demonstration against gene technology, food industry and industrialised agriculture and animal husbandry. Title: Skull with 'Monsanto' (multinational agricultural biotechnology corporation) (Photo by Markus Matzel/ullstein bild via Getty Images)
An activist of the global environmental watchdog Greenpeace demonstrates against US biotech giant Monsanto and the commercial sowing of transgenic corn, at the entrance of the Economy Ministry in Mexico City, on November 5, 2012. AFP PHOTO/ Pedro Pardo (Photo credit should read Pedro PARDO/AFP/Getty Images)
Protesters march on the Meir in Antwerp on May 25, 2013 during a protest against the American multinational agricultural biotechnology corporation Monsanto. Thousands of people rallied in several European cities, notably in the Netherlands, France, Belgium, Austria and Germany, to protest against Monsanto and more generally against genetically modified organisms (GMOs), pesticides and other chemical products. AFP PHOTO / BELGA / JONAS ROOSENS **BELGIUM OUT** (Photo credit should read JONAS ROOSENS/AFP/Getty Images)
People hold signs during a demonstration against agribusiness giant Monsanto and genetically modified organisms (GMO) in front of the White House in Washington on May 25, 2013. AFP PHOTO/Nicholas KAMM (Photo credit should read NICHOLAS KAMM/AFP/Getty Images)
People hold signs during a demonstration against agribusiness giant Monsanto and genetically modified organisms (GMO) in front of the White House in Washington on May 25, 2013. AFP PHOTO/Nicholas KAMM (Photo credit should read NICHOLAS KAMM/AFP/Getty Images)
A boy with a Native American dance troupe holds a sign during a protest against agribusiness giant Monsanto in Los Angeles on May 25, 2013. Marches and rallies against Monsanto and genetically modified organisms (GMO) in food and seeds were held across the US and in other countries with protestors calling attention to the dangers posed by GMO food. AFP PHOTO / ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
[UNVERIFIED CONTENT] On 25 May 2013, activists around the World united to March Against Monsanto. This event took place in 428 cities in 58 countries.
[UNVERIFIED CONTENT] A sign showing displeasure in the practices of agribusiness, Monsanto, rests on the head of an anonymous protester during a gathering in Holladay Park. Portlanders did their part in the worldwide march that took place on 05/25/13. Portland was one of nine Oregon cities to host anti-Monsanto protests to express concern over genetically modified foods.
Activists carry signs during a protest against chemical giant Monsanto in Durban on October 12, 2013. Marches rally against Monsanto and genetically modified organisms (GMO) food and seeds were held across South Africa and in other countries with protestors calling attention to the dangers posed by GMO food. AFP PHOTO / RAJESH JANTILAL (Photo credit should read RAJESH JANTILAL/AFP/Getty Images)
CAPE TOWN, SOUTH AFRICA MAY 23(SOUTH AFRICA OUT): Protesters take part in a march against the American multinational agrochemical and agricultural biotechnology corporation Monsanto and genetically modified organisms (GMOs) on May 23, 2015 in Cape Town, South Africa. The protest forms part of a global day of action against the agricultural biotechnology company. (Photo by Nardus Engelbrecht/Gallo Images/Getty Images)
CAPE TOWN, SOUTH AFRICA MAY 23(SOUTH AFRICA OUT): Protesters take part in a march against the American multinational agrochemical and agricultural biotechnology corporation Monsanto and genetically modified organisms (GMOs) on May 23, 2015 in Cape Town, South Africa. The protest forms part of a global day of action against the agricultural biotechnology company. (Photo by Nardus Engelbrecht/Gallo Images/Getty Images)
MUNICH, GERMANY - JUNE 04: An activist dressed as an ear of corn and protesting against the U.S. agriculture company Monsanto attends a rally following a protest march attended by approximately 30,000 people against the upcoming G7 summit on June 4, 2015 in Munich, Germany. The leaders of the G7 nations are scheduled to meet at nearby Schloss Elmau June 7-8. (Photo by Sean Gallup/Getty Images)
Activists take part in a march against US agrochemical giant Monsanto and GMO food products, May 23, 2015, in Los Angeles, California. Thousands of people hit the streets in cities across the world Saturday to protest against the American biotechnology giant Monsanto and its genetically modified crops and pesticides. AFP PHOTO / ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
A masked individual holds up a sign reading 'Monsanto: this nightmare wants to sell your dreams' during a rally against global warming on November 29, 2015 at Place de la Republique in Paris, a day ahead of the start of UN conference on climate change COP21. AFP PHOTO / JOEL SAGET / AFP / JOEL SAGET (Photo credit should read JOEL SAGET/AFP/Getty Images)
SANTIAGO, CHILE - JANUARY 22: Protesters took to the streets in downtown Santiago as part of a series of worldwide protests against the free trade agreement between Monsanto Co. and Trans - Pacific Partnership (TPP) on January 22, 2016 in Santiago de Chile, Chile. (Photo by Sebastián Vivallo Oñate/Agencia Makro/LatinContent/Getty Images)
Protesters walk, during a World March Against Monsanto, in Paris, France, during a global day of action against the agricultural biotechnology company, in Paris, Saturday, May 23 2015. Marches and rallies against Monsanto, a sustainable agriculture company and genetically modified organisms (GMO) food and seeds were held in dozens of countries in a global campaign highlighting the dangers of GMO Food. Banner reads 'Against Monsanto'. (AP Photo/Kamil Zihnioglu)
Protesters participate, during a World March Against Monsanto, in Paris, France, during a global day of action against the agricultural biotechnology company, in Paris, Saturday, May 23 2015. Marches and rallies against Monsanto, a sustainable agriculture company and genetically modified organisms (GMO) food and seeds were held in dozens of countries in a global campaign highlighting the dangers of GMO Food. (AP Photo/Kamil Zihnioglu)
Anti-GMO (Genetically Modified Organisms) protesters hold banners as they march against Monsanto, in Helsinki, Saturday Oct. 12, 2013. Demonstrations against agricultural giant Monsanto are taking place around the world this weekend and the protesters are rallying against the companyâs reported use of genetically modified organisms. Placard at background reads 'Annihilate GMO' (AP Photo / LEHTIKUVA / Heikki Saukkomaa) FINLAND OUT
Protesters march to the Statehouse in Montpelier, Vt., Thursday, Feb. 26, 2004, to call for a time out on genetically engineered crops. They went inside to listen to Monsanto lobbyists as they testify before the House Agriculture Committee. (AP Photo/Toby Talbot)
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Monsanto, which said last week it had a received an approach from Bayer but gave no details, has yet to comment on the offer. The U.S. company's shares jumped 9.5 percent to $111.17 in pre-market trading.

"UPPER LIMIT"

Global agrochemicals companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes and also due to the growing convergence between seeds and pesticides markets.

ChemChina is buying Switzerland's Syngenta for $43 billion after Syngenta rejected a bid from Monsanto, while Dow and DuPont are forging a $130 billion business.

With German rival BASF also looking into a possible tie-up with Monsanto, Bayer has moved to avoid being left behind.

Baumann rejected suggestions from some investors that Bayer should instead try to forge a joint venture with Monsanto, saying this would have tax disadvantages.

Sources close to the matter have said BASF is unlikely to start a bidding war with Bayer. BASF declined to comment on Monday. But analysts say Bayer might still have to pay more to persuade Monsanto and its shareholders to sell up.

That could be a problem, with some saying Bayer's proposal, at 15.8 times its earnings before interest, tax, depreciation and amortization for the year ended Feb. 29, is already a stretch for the German company.

"The price that has now been disclosed is at the upper limit and it is just about economical. Should it rise further, which is to be assumed, the takeover will become increasingly unattractive," said Markus Manns, a fund manager at Union Investment, Bayer's 14th biggest investor.

Shares in Bayer, which had already fallen 14 percent since rumors of a bid emerged last week, dropped as much as 3.6 percent on Monday to a new 2-1/2 year low of 86.3 euros.

"VERY AMBITIOUS"

Bayer said it would finance the bid with a combination of debt and equity, primarily a share sale to existing investors. Equity would account for about a quarter of the deal value.

Equinet analyst Marietta Miemietz, who has a 'buy' rating on Bayer stock, said the extra debt appeared manageable but could limit Bayer's ability to invest in its healthcare business, which some analysts think needs a boost to its drugs pipeline.

Baumann said Bayer would continue to develop its healthcare arm, which includes stroke prevention pill Xarelto and aspirin, the painkiller it invented more than a century ago.

"We are not feeding Peter by starving Paul here," he said, adding no asset sales were planned to help pay for the deal.

Bayer also forecast synergies from a deal with Monsanto would boost annual earnings by around $1.5 billion after three years, plus additional future benefits from integrated product offerings - a reference to its push to combine the development and sale of seeds and crop protection chemicals.

Berenberg analysts, who have a 'buy' rating on Bayer shares, described the synergies estimate as "very ambitious".

(Reporting by Maria Sheahan, Ludwig Burger and Patricia Weiss; Writing by Ludwig Burger and Georgina Prodhan; Editing by Edwina Gibbs and Mark Potter)

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