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Sanford's Oxgaard on Hurdles to the Bayer-Monsanto Deal(Audio) · Bloomberg Intelligence

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  Speaker 1: The shares of Monsanto are down about one percent today.
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  Speaker 1: Is comes after buyer or Bear lifted its offer from
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  Speaker 1: Monsanto to a hundred and twenty seven dollars and fifty
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  Speaker 1: cents a share. That that compares to its previous offer
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  Speaker 1: of about a hundred and twenty five dollars a share
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  Speaker 1: that was in July, and the current bid values Monsanto
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  Speaker 1: at over sixty five billion dollars. This includes debt. Here
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  Speaker 1: to tell us more about this potential deal is Jonas
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  Speaker 1: ox Guard. He is equity analyst for chemicals at Sanford Bernstein. Jonas,
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  Speaker 1: thanks very much for being with us. Why does buyer
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  Speaker 1: want Monsanto so much? Oh, that's a standard response to
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  Speaker 1: week margins in the industry. So we're we're coming off
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  Speaker 1: this high peak where the ag economy was booming. Farmers
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  Speaker 1: made money hand or fist, and that translated to high
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  Speaker 1: margins for the input companies. That's passed right now in
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  Speaker 1: a vironment where volumes are flat, prices are flat negative
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  Speaker 1: and well, the way to grow your earnings then is consolidation.
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  Speaker 1: So there you have it. Now, how about the price
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  Speaker 1: before we get into exactly what buyer or a bear
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  Speaker 1: will get out of this. Uh, if they win this
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  Speaker 1: this battlety versus a hundred and thirty, that's what our
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  Speaker 1: our Bloomberg reporters are seeing is sort of the floor
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  Speaker 1: from mont Santo. Is that such a big difference that
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  Speaker 1: this can't be settled. I think that if mont Santo
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  Speaker 1: had said, you know what, one thirty will make a
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  Speaker 1: sign on the dotal line, they would be there by now.
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  Speaker 1: I'm guessing that mont Santo is is thinking a bit
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  Speaker 1: higher than that, and there's a sufficeable gap to be bridged.
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  Speaker 1: Can you tell us what areas are there that both
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  Speaker 1: companies have overlapped, because this is going to be a
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  Speaker 1: regulatory hurdle both in the United States and in Europe
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  Speaker 1: to get over What are some of the businesses that
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  Speaker 1: are duplicative and also that might have to be sold
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  Speaker 1: or spun off in order to get that kind of
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  Speaker 1: regulatory approval. Yeah, there's actually not that much duplication between
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  Speaker 1: the two. Montsanto is primarily a seed company. They're one
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  Speaker 1: chemical is really glyfeu say, it's a very specific chemical
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  Speaker 1: they're they're they're primarily a crop protection company for protection
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  Speaker 1: meaning insecticides, pesticides, and also chemicals, and they do have
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  Speaker 1: a seed arm, but it's fairly small. It's also very
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  Speaker 1: focused on some of the smaller crops that the big boys,
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  Speaker 1: so Monsanto DuPont, that they didn't really bother with initially.
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  Speaker 1: So Bear is big in in cotton and canola. Montsanto
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  Speaker 1: is big in corn and soybeans. They do have some
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  Speaker 1: cotton sales and they're starting to get into canola, so
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  Speaker 1: the overlap is fairly small. They will probably have to
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  Speaker 1: divest some of the cotton business, probably have to invest
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  Speaker 1: the emerging kennola business from one Santo. There might be
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  Speaker 1: some smaller chemicals, but overall, um, it's not really a
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  Speaker 1: big deal on the technical front. Now that all said,
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  Speaker 1: I think that there's a political angle to this that
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  Speaker 1: makes the deal a lot harder to get past regulators. Um,
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  Speaker 1: these are two of the largest input providers and agg
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  Speaker 1: inputs meaning seeds and crop protection chemicals. Those make up
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  Speaker 1: about of the farmer's cost. So these are major inputs
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  Speaker 1: right in the farm economy. So if you have two
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  Speaker 1: companies joining, that makes them the by far the biggest
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  Speaker 1: player in the space. Well, the farmers are taking notice.
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  Speaker 1: Farmer lobbies have already been pushing back. We've seen politicians
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  Speaker 1: start to pay attention to a crafty. For example, he's
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  Speaker 1: calling for a Senate hearing sometime later this month, and
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  Speaker 1: so we will see how that goes. Okay, Well, you know,
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  Speaker 1: uh what about are there any liabilities? I guess not,
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  Speaker 1: because obviously Buyer wants Monsanto. Monsanto has been in many
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  Speaker 1: situations already. I mean, it produced PCBs which turned out
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  Speaker 1: to be highly toxic until the late nineties seventies, when
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  Speaker 1: it was made so obvious that they were bad that
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  Speaker 1: they had to stop making them. Now there's this this
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  Speaker 1: herbicide decomba misuse camp complaints that some people are accusing
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  Speaker 1: Monsanto of engineering months and that, of course we didn't
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  Speaker 1: do anything like that. Is there a point where Monsanto,
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  Speaker 1: especially in Europe where they're so against genetically modified foods?
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  Speaker 1: Is there any point where Monsanto has is a bit
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  Speaker 1: of a liability for whomever requires them? Ah, there was
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  Speaker 1: a string of fairly bad news a while ago, but
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  Speaker 1: that was actually predating Buyer's bits. They clearly knew about
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  Speaker 1: all these things before they made the bit of the
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  Speaker 1: first first case. Um, most of that reputation as learned,
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  Speaker 1: I mean the day cam By issue. In all fairness
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  Speaker 1: of Monsanto, they didn't actually have anything to do with that, right.
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  Speaker 1: This is farmers who applied I cam by illegally. Um,
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  Speaker 1: there's not much that Monsanta can do about it, not
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  Speaker 1: about high debt levels that might be incurred if this
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  Speaker 1: deal is concluded. Yeah, so this it's a massive deal
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  Speaker 1: right at sixty plus billion. And the main motivation perhaps
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  Speaker 1: is that bear can borrow money at two and a
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  Speaker 1: half percent interest, give or take, and at two and
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  Speaker 1: a half percent interest, almost anything is a creative. Now,
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  Speaker 1: if you borrow at billion or so, then yeah, you
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  Speaker 1: you load up quite a bit. Um ends up being
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  Speaker 1: fairly close to that four times the bit level that
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  Speaker 1: companies typically start feeling uncomfortable with, and so they're gonna
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  Speaker 1: spend quite some time paying that off. But Joanna, it's
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  Speaker 1: just been a quickly before before we finish. If buyer
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  Speaker 1: doesn't succeed in this, who else would buy M on Santa?
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  Speaker 1: Who would be at the top of your list? I
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  Speaker 1: honestly don't sure there is anyone who is in position
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  Speaker 1: to buy it. BAF is the only other real candidate.
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  Speaker 1: There might be some Chinese conglomerates also wants to break in,
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  Speaker 1: but I doubt that good past political pressure. So really
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  Speaker 1: no one out there. Okay, Well, we shall see Jonas Oscar,
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  Speaker 1: Thank you so very much. He's chemicals equity analyst at
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  Speaker 1: Sanford Bernstein, Quoted in our Bloomberg story Today in Fact,
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  Speaker 1: written by Lidia mulvaney and Chietris Somanyaji, about the sweetened
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  Speaker 1: buyer bid for mont Santa, the regulatory challenges, the farmers
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  Speaker 1: getting a little bit nervous. This is all very interesting
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  Speaker 1: for this deal. This is Bloomberg coming up on taking
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  Speaker 1: percent stake in Navistar International, the German automaker looking to
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