Monsanto disclosed the approach on Wednesday before Bayer confirmed its move, though neither gave the proposed terms. Sources said Bayer would pay Monsanto shareholders with cash and stock, though the offer price could not be learned.

Bernstein Research analyst Jeremy Redenius estimated the price at 41.9 billion euros (C$61.6 billion), plus 6.7 billion euros (C$9.85 billion) in assumed debt. He said Bayer might need a 27 billion-euro share issue to help to fund the purchase.

Bayer would probably need to pay 14-16 times Monsanto’s core earnings, implying a takeover price including debt of 57 billion euros to 65 billion euros (C$84 billion to $96 billion), according to Citi analysts.

Bayer shares slid eight per cent to a 2-1/2 year low of 88.39 euros as some investors worried about the potential cost. Monsanto was up 4.7 per cent at $101.77 in afternoon trading in New York.

The market capitalization of Monsanto meant the deal would likely eclipse ChemChina’s planned acquisition of Swiss agrichemicals company Syngenta and could face U.S. antitrust hurdles. Monsanto itself pursued Syngenta last year.

Monsanto said its board was reviewing the proposal, which would be subject to due diligence, regulatory approvals and other conditions. There was no assurance that any transaction would take place, it added.

UBS Global Asset Management, which Reuters data showed is among Bayer’s 30 biggest investors, said it was “deeply concerned” about the burden on Bayer’s finances from a takeover. It preferred that the companies agree on a joint venture or use prices before the deal was announced.

Deutsche Bank analysts said a deal could shift Bayer’s center of gravity to agriculture, accounting for about 55 per cent of core earnings, up from roughly 28 per cent last year, excluding the Covestro chemicals business Bayer plans to sell.

Bayer’s healthcare-focused investor base would be unhappy about the shift, the bank said.

Price estimates

Bayer, with a market value of US$90 billion, said the merger would create “a leading integrated agriculture business,” referring to Bayer’s push for more synergies by combining the development and sale of seeds and crop protection chemicals.

Most major agrichemical companies are aiming to genetically engineer more robust plants and custom-build chemicals to go with them — selling them together to farmers struggling with low commodity prices.

A sale of Bayer’s stake in foam chemicals maker Covestro could bring about four billion euros, while its animal health business, which Bayer might put on the block, could fetch up to seven billion euros.

The proposal comes as U.S. regulators review ChemChina’s deal for Syngenta on concerns about the security of the U.S. food supply.

Any marriage between Bayer and Monsanto could raise U.S. antitrust concerns due to an overlap in the seeds business, particularly in soybeans, cotton and canola, according to antitrust experts.

Bayer’s proposal, which would be its largest and dwarf the 17 billion-euro takeover of drugmaker Schering in 2006, comes less than three weeks after Werner Baumann took over as Bayer CEO, a sign of the power base he built in his previous role as strategy chief.

Bayer, the inventor of aspirin and maker of Yasmin birth control pills, is more diversified than Syngenta or Monsanto, selling cancer drugs, flea and tick collars for pets and Coppertone sunscreen. A deal with Monsanto could lead to a breakup of the group, according to analysts.

Bayer’s crop science division has businesses in seeds, crop protection and non-agricultural pest control, potentially complementing Monsanto’s seeds assets.

Bayer, BASF ambitions

Both Bayer and German rival BASF SE have been looking to build scale in agrichemicals.

Bayer is ranked No. 2 in crop chemicals, with an 18 per cent market share, just behind Syngenta at 19 per cent, according to industry data.

Monsanto leads in seeds, with a 26 per cent market share, followed by DuPont with 21 per cent. DuPont agreed last year to merge with Dow Chemical. Any Bayer-Monsanto deal would reduce the number of major players in seeds and pesticides to four from six.

— Reporting for Reuters by Greg Roumeliotis and Mike Stone in New York, Ludwig Burger in Frankfurt and Victoria Bryan in Berlin.

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Monsanto, which wants to combine its world-leading seeds business with Syngenta’s own seeds and pesticides, raised its offer to 470 Swiss francs (C$663) per share, from 449, the person said.

The increased offer, which sent Syngenta’s shares jumping, is aimed at ending the stalemate between the two firms. Syngenta rejected a previous proposal in April and has refused to open its books to its rival.

Monsanto’s sweetened offer is primarily comprised of an increase to the cash portion of its cash and stock proposal, the person added.

Some top investors had been pushing Syngenta to at least sit down with Monsanto and seek a better offer. Cedric Lecamp, senior investment manager at Pictet Asset Management, the 17th-biggest investor in Syngenta, told Reuters earlier this year he thought a deal could get done above 500 francs.

A Sanford C. Bernstein survey earlier this month of nearly 100 current and former Syngenta investors found that about 92 per cent were in favour of a negotiated deal, and would accept a five per cent higher offer from Monsanto. The average acceptable offer price among the investors was 473 francs, according to the report.

The new offer also includes an increase in the break-up fee to US$3 billion from $2 billion if the transaction is blocked by regulators or falls apart for other reasons, the person said.

The offer is not necessarily Monsanto’s best and final bid, and the door could be open to negotiations if Syngenta engages, according to the person familiar with the matter.

A representative for Syngenta, the world’s largest maker of farming pesticides, told Reuters on Monday, “There is no comment to make.” A spokeswoman for Monsanto, the world’s leading seed company, declined to comment.

The increased offer was first reported by Bloomberg on Monday.

Sparring

The value of Monsanto’s share and cash offer has been challenged by a souring U.S. agricultural economy and the recent ructions in the global financial markets.

Its stock price has fallen nearly 20 per cent in the past three months, as grain prices remain soft and U.S. grain exports are hampered by a strong dollar. Its market capitalization is now about US$45.6 billion.

Syngenta’s U.S. listed shares jumped 10 per cent on Monday after closing in Zurich at 357.6 francs a share, putting the company’s market value at roughly US$35.5 billion.

While Monsanto has so far ruled out taking its bid hostile, sparring between the two companies has become increasingly tense with both launching websites promoting their cause and executives from each meeting investors.

Monsanto, which courted Syngenta twice previously without success, has argued the deal will make both firms more efficient by developing seeds and pesticides in tandem and integrating sales and distribution strategies for the two product categories.

Syngenta has argued the deal faces tough regulatory hurdles that Monsanto has not addressed and that the offer undervalues the company.

“We said no in 2011, we said no in 2012, we said no in 2015. What part of no don’t they understand?” CEO Michael Mack told a press conference in July at the group’s Basel, Switzerland headquarters.

Monsanto has promised to sell off Syngenta’s overlapping seed and chemical assets if it wins control of the Swiss company. But the deal could still face regulatory challenges in the U.S., Brazil, China and elsewhere, creating hurdles that could delay or force major concessions to the deal, should it go forward.

— Reporting for Reuters by Mike Stone in New York and P.J. Huffstutter in Chicago. Additional reporting for Reuters by Simon Jessop in London.

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Monsanto, the world’s largest seed company, made a US$45 billion bid for Syngenta this spring that the Swiss company rejected. The U.S. company is still working on a deal and could decide to increase its bid.

Paulson + Co, headed by billionaire John Paulson, became famous after betting that the U.S. housing bubble would burst. The people familiar with the matter asked not to be named because they were not authorized to speak publicly.

Paulson has purchased shares of potential acquisition targets in the past in contested mergers such as that of drug companies Mylan NV and Teva Pharmaceutical Industries.

Paulson + Co. was said to have started amassing its stake in June, one of the people said. Bloomberg LP reported Paulson’s stake earlier today.

— Mike Stone is a Reuters correspondent covering mergers and acquisitions from New York City.

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