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Monsanto Acquisition Talk All 'Just Speculation,' Piper Says Watch For Selling Pressure Next Week

Monsanto Company NYSE:MON, BASF SE ADS BASFY - Monsanto Acquisition Talk All 'Just Speculation,' Piper Says Watch For Selling Pressure Next Week

A Bloomberg report said Germany's Bayer AG (ADR) BAYRY 4.42% is exploring an acquisition of Monsanto Company MON 8.71%, but Piper Jaffray says the news is nothing but speculation.

"Out this morning are press reports that both Bayer and BASF are in talks to acquire Monsanto, which is not a new discussion, and to us seems to still be speculation," analyst Brett Wong wrote in a note.

Wong, who has an Overweight rating on Monsanto, said talks have been ongoing between Monsanto and the German ag majors as "we believe Monsanto remains committed to building a chemistry business."

The analyst noted that the potential chemistry business "is likely to come from piecing certain opportunities together, like a potential JV with another major and acquiring specific products that may come to the market."

Related Link: Citi Analyst Shows Skepticism Monsanto Could Be Purchased by BASF, Sees 'Low Probability Event'

Despite saying the merger news is speculation, Wong said any potential acquirer would pay mid-$50 billion for Monsanto based on a similar ~16x trailing EBTIDA multiple that Syngenta received from ChemChina.

However, the analyst said Monsanto is the "best seed company in the world" and commands higher multiple than Syngenta, which Wong termed as "a less quality seed business."

The analyst also noted Bayer would be a "better fit" for Monsanto compared to BASF SE (ADR) BASFY 1.85% as "the product cross over between Bayer would be higher compared to that of BASF."

In the event of a potential acquisition, Wong said since Bayer has some seed assets, like cotton, they would need to be divested, whereas BASF does not have seed exposure.

On the chemical side, Wong noted that herbicide makes up about 30 percent for both Bayer and BASF and regulators may ask for the divestiture of the full line of herbicides for either, although "we do not think it would be that extreme."

In addition, the analyst said the culture plays a key role in this type of mega deals and both Bayer and Monsanto have a similar "innovative, risk-taking culture," while BASF "plays it safer and likes to be a second mover."

Last but not the least, a German firm buying a U.S. company would attract regulatory concerns around tax inversion. The $160 billion merger of Pfizer Inc. PFE 0.02% and Allergan plc Ordinary Shares AGN 2.31% collapsed on tax inversion issues.

"We still believe that the news out today is speculation and without an official bid over the next week we believe shares of MON may be under pressure," Wong added.

Shares of Monsanto climbed 9 percent to $98.38, while Wong has a $95 price target on the stock.

Apr 2016Goldman SachsMaintainsSell
Apr 2016JP MorganMaintainsNeutral
Apr 2016CitigroupMaintainsNeutral

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