 "Monsanto shareholders should accept Bayer's open offer: Experts")
Soon after Bayer AG managed to acquire Monsanto group globally, the German agrochemicals maker took no time to announce an open offer to pick up majority of the public shareholding in Monsanto India. The US-based group held 72.14 per cent stake in Monsanto India as on June 30, and after the acquisition of parent by Bayer AG group, Monsanto India will come under Bayer’s fold.
An open offer to acquire up to 4,488,315 fully paid-up equity shares having a face value of Rs 10 each, representing 26 per cent of the fully diluted voting equity share capital of Monsanto India, has been given by Bayer Aktiengesellschaft (AG). The offer price of Rs 2,481.6 was about four per cent higher than the closing price of Monsanto India of Rs 2,396.5 on September 20. After the open offer announcement, Monsanto India’s stock has risen to Rs 2,446.1 on Wednesday.
Bayer’s open offer is to meet the regulatory requirements, experts such as Sageraj Bariya at East India Securities say that while the dates for open offer are not known, given the offer price, it will support the stock in the interim. But, the key question is: should Monsanto India’s shareholders accept the offer and submit shares? Fundamentals and stock valuations suggest they should.
An open offer to acquire up to 4,488,315 fully paid-up equity shares having a face value of Rs 10 each, representing 26 per cent of the fully diluted voting equity share capital of Monsanto India, has been given by Bayer Aktiengesellschaft (AG). The offer price of Rs 2,481.6 was about four per cent higher than the closing price of Monsanto India of Rs 2,396.5 on September 20. After the open offer announcement, Monsanto India’s stock has risen to Rs 2,446.1 on Wednesday.
Bayer’s open offer is to meet the regulatory requirements, experts such as Sageraj Bariya at East India Securities say that while the dates for open offer are not known, given the offer price, it will support the stock in the interim. But, the key question is: should Monsanto India’s shareholders accept the offer and submit shares? Fundamentals and stock valuations suggest they should.
Consider this: Monsanto India that has seen strong growth propelled by genetically modified (GM) cotton seeds, however, has seen regulatory hurdles of late. Thus, Monsanto, which has seen 10 per cent uptick in revenue (compounded annual growth rate) over FY12-16 and profits having doubled from Rs 50.19 crore in FY12 to Rs 101.25 in FY16, saw a soft June 2016 quarter. The company’s revenues and profits declined 8.7 and 9.8 per cent, respectively, in the quarter. While this has had some impact on the stock in the recent past, since the news of Bayer and Monsanto’s global deal was already known, the stock has remain elevated. In the past six months, from the closing lows of Rs 1,571.5 in April, it had touched 52-week highs of Rs 2,744.85 in the June 2016 before cooling off a bit around August. Since the stock price of Monsanto has been driven by the proposed merger, it would be a good option for investors to tender shares at these high levels, say experts.
G Chokkalingam of Equinomics Research & Advisory says, “The valuations of Monsanto India at current levels are also not cheap and looking at the regulatory challenges faced by the company, the investors would be better off tendering shares.” It would be better for investors to hold Bayer CropScience shares, he adds.
Analysts suggest it would be better for investors to switch to Bayer CropScience; most analysts were already positive on it even before the acquisition announcement came.
Analysts at HSBC said: “Within domestic pure-plays, we have a ‘buy’ rating on Bayer CropScience with a fair value target price of Rs 4,335. They believe there could be an upside to their own as well as to consensus estimates for Bayer CropScience should the monsoons this year and the next be better than expected. Bayer’s stock closed at Rs 4,155 levels on Wednesday.
