Bayer to buy Monsanto for $128 a share

German chemicals and drugs firm Bayer has agreed to buy US seed giant Monsanto for $128 per share in an all-cash transaction that will create a company worth $66bn.

The offer represents a premium of 44% to the closing price of Monsanto on 9 May, which was the last day before Bayer made its written proposal to the company.

Bayer said it plans to finance the deal – which is expected to close by the end of 2017 – with a combination of debt and equity.

Bayer’s chief executive officer Werner Baumann said: “We are pleased to announce the combination of our two great organisations. This represents a major step forward for our crop science business and reinforces Bayer’s leadership position as a global innovation driven Life Science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees and society at large.”

Meanwhile, Monsanto’s CEO, Hugh Grant, said: “Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders at Monsanto. We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration.”

Bayer initially offered $122 per share back in May, but this was rejected by Monsanto for being “financially inadequate”.

The offer price was sweetened to $125 per share in July, and earlier this month the German firm said it was in advanced negotiations with Monsanto and that it would be prepared to pay $127.50 per share.

Goldman Sachs said that based on its analysis, the deal would be -1% and 1% accretive in the first year after close and 3% to 5% accretive in the second.

“While our initial conversations with clients, after Bayer’s approach was first announced in May, suggested scepticism of the deal, investors have become more positive about the strategic fit and the resultant new entity,” the bank said.

It rates Bayer at ‘buy with a 12-month price target of €129, taking no view on the outcome of the proposed deal.

“Our thesis is based on longer-term margin upside in pharma and consumer health, with low pipeline expectations. Key risks are lower than expected synergies from Bayer’s previous acquisitions and pipeline disappointments.”

At 1558 BST, Bayer shares were up 1.7% to €94.88 while Monsanto was 0.7% higher at $106.91.