Latest / Bloomberg Intelligence / Sanford's Oxgaard: Not Optimistic on Bayer-Monsanto Deal(Audio)

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Sanford's Oxgaard: Not Optimistic on Bayer-Monsanto Deal(Audio) · Bloomberg Intelligence

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  Speaker 1: business flash. You're listening to taking stock with Kathleen Hay
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  Speaker 1: and Pim Box on Bloomberg Radio. Seeds and anti trust issues. Yes,
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  Speaker 1: Bear bidding four months. Santo here to give us more
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  Speaker 1: details and tell us about the likelihood that the deal
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  Speaker 1: will go through is joinas Ox Guard. He is equity
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  Speaker 1: analyst for chemicals at Sanford Bernstein. You want to thank
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  Speaker 1: you very much for being with us. Tell us a
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  Speaker 1: little bit about why Bear wants to acquire Monsanto my pleasure.
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  Speaker 1: I think it's Uh, they're afraid of being left out
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  Speaker 1: at the space is consolidating around them, and they're realizing
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  Speaker 1: that there's there's only three people left on the dance
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  Speaker 1: floor and they need to do something otherwise they'll be
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  Speaker 1: the loan one out. Well, our story today on the
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  Speaker 1: Bloomberg Bears pursuit of forty five billion dollar mons Santo
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  Speaker 1: greeted with skepticism. Uh, just piles up all the bad
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  Speaker 1: steps that Monsanto has taken, and so in that sense,
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  Speaker 1: I guess it's a good time to acquire them. Yeah,
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  Speaker 1: I think that's right. And the mont Santo has had
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  Speaker 1: an incredible string of bad news over the last couple
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  Speaker 1: of months. Um, I think, well beyond anything they had
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  Speaker 1: control over for the most part. Um, but most of
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  Speaker 1: them haven't really hit their earnings. So the downward revisions
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  Speaker 1: they've been making, that's been at least some of that
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  Speaker 1: has in currency. Some of that has been just the
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  Speaker 1: market being down, And maybe I should I should qualify
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  Speaker 1: this way, it's a good time to consolidate the industry,
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  Speaker 1: whether that is Monsanto versus others. I think it's more
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  Speaker 1: of the difference. Why are Bare shareholders not as excited
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  Speaker 1: about this deal as perhaps the investors in mont Santo. Well,
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  Speaker 1: that will be the premium that Buyer shareholders are expecting
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  Speaker 1: Buyer to pay up for. But I mean, the stock
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  Speaker 1: is down more than eight percent today. No one seems
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  Speaker 1: to like the deal. Yeah, but the thing is that
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  Speaker 1: buyer doesn't have the cash to pay for this, so
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  Speaker 1: they're gonna have to issue equity buyo fareholders not particularly
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  Speaker 1: pleased on this um. That said, I joined the skepticism
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  Speaker 1: that I'm not. I don't particularly optimistic that this deal
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  Speaker 1: to go through. I think Buyer will float a an
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  Speaker 1: offer with a share price that is to know what
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  Speaker 1: Monsanto is willing to accept, and they might dancer on
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  Speaker 1: for a bit. But ultimately I think there's a disconnect
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  Speaker 1: between what buyers willing to pay but mos Santis will
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  Speaker 1: exactly negotiating what. Broadly speaking, when you look at this industry,
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  Speaker 1: what are the what are a couple of the big
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  Speaker 1: forces that companies like Buyer like Montsanto are contending with,
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  Speaker 1: in particular those that would argue for or against a
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  Speaker 1: marriage like this, And a big source is the end
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  Speaker 1: of the age cycle of their cultural cycle. Okay, yeah, exactly.
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  Speaker 1: The corn price, the soybean prices are very high between
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  Speaker 1: two thousands six two thousand, twelve twelve or thirteen. Farming
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  Speaker 1: and incomes are high. And then when the top prices
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  Speaker 1: held um, farming and income dramatically during the boom time,
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  Speaker 1: farmer costs had gone up, and so when revenue plunge,
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  Speaker 1: the farmers are actually net negative for the first time
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  Speaker 1: in well about a decade. And so when the farmers
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  Speaker 1: net income is negative, they just don't have the money
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  Speaker 1: to pay for proceeds or or any of the other inputs.
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  Speaker 1: Now they can, they still buy because they still have
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  Speaker 1: to sew. But it does mean that they look more
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  Speaker 1: aggressively at cost, They negotiate more, they don't upgrade. And
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  Speaker 1: you can see that in mont Amtle's numbers. Right the
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  Speaker 1: first quarter mont cento price was exactly flat. Voliumes down slightly,
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  Speaker 1: and that's largely true for the entire industry exception of
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  Speaker 1: the pond. You know, just what happens for oil prices
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  Speaker 1: continue there, we bound continue to move higher. Will that
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  Speaker 1: affect the deal? Not really? And the oil prices has
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  Speaker 1: very little impact on mont Santo um. There's an indirect
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  Speaker 1: relationship between corn demand and oil in that you can
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  Speaker 1: push out a little bit more into ethanol, but we're
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  Speaker 1: basically maxed out already. But that doesn't really do much
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  Speaker 1: of an impact. Very little of their input costs are
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  Speaker 1: based on crude, so I don't I really don't think
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  Speaker 1: oil should have any impact on them. M jonas in
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  Speaker 1: Europe in particular, you know Monsanto and its genetically modified seeds.
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  Speaker 1: This is such a contentious thing, so many Europeans are
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  Speaker 1: against g m OS. Does that enter into the this
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  Speaker 1: deal at all? It is kind of surprising, right, that's
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  Speaker 1: the European based company making bid for what is in
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  Speaker 1: some surveys and most hid the company in the world,
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  Speaker 1: um and and and well possibly also qualified for the
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  Speaker 1: most misunderstood company in the world. But Buyer doesn't seem
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  Speaker 1: to have been painted with that same brush. I mean,
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  Speaker 1: Buyer does do GMCED research already, they sealgic and seeds,
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  Speaker 1: but they are not painted us the great evil that
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  Speaker 1: Monsanto is um. If they do succeed, i'd expect that
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  Speaker 1: the Munsantum name would probably disappear. And that's probably a
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  Speaker 1: minor positive. I don't think it's like a huge impact,
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  Speaker 1: but probably something would be disagreeing for quite quickly. All right, Well,
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  Speaker 1: jonahs Star, thank you so very much for joining us.
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  Speaker 1: He's equity analysts for chemicals at Sanford burn Steen. Weighing
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  Speaker 1: in on the potential takeover of Monsanto by Germany's buyer.
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  Speaker 1: He's not so hot on the deal either. This is
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