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Sep 6, 2016

Bayer hikes Monsanto bid to US$65 billion as talks enter final stretch

Monsanto

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FRANKFURT/NEW YORK - German pharmaceutical and crop chemicals manufacturer Bayer AG says talks with Monsanto Co (MON.N) have advanced and  it is now willing to offer more than US$65 billion, a 2 per cent increase on its previous offer for the world's largest seeds company.

"Both sides are gradually nearing consensus," one person familiar with the matter said.

Monsanto has also agreed to open its books for Bayer to conduct due diligence checks on the company's business, two sources close to the matter said.

Bayer's previous offer was already the largest all-cash takeover bid on record with a deal with Monsanto aimed at giving the German company a shot at grabbing the top spot in the fast-consolidating farm supplies industry, combining its crop science business with Monsanto's strength in seeds.

Bayer now says it is prepared to offer US$127.50 per share in a negotiated deal, up from its previous offer of US$125 per share.

But German daily newspaper Rheinische Post also reported late on Monday that an offer of US$130 per share may be necessary to get a deal with Monsanto "in a swift and friendly way."

Bayer was still considering all options regarding Monsanto, including striking a friendly deal, making a hostile bid or pulling its offer, a person familiar with the matter told Reuters.

Bayer's shares were down 0.25 per cent at 94 euros by 0934 GMT on Tuesday. Monsanto's shares last traded at US$107.44 and analysts at brokerage Equinet said Bayer has now effectively capped its Monsanto bid.

"We infer from Bayer's statement that failure to agree a deal at US$127.50/share could imply a risk to Monsanto  shareholders of either a hostile bid at a lesser consideration, or no deal at all," they said in a note.

Analysts from Baader Helvea disagreed. "We still expect a bid per share in the US$130-135 range before Monsanto comes to the table. As such, we continue see the Bayer shares remaining under pressure as the negotiations continue," they said in a note.

In a brief statement, Monsanto said on Monday it had been engaged in "constructive" negotiations with Bayer, during which it received the updated non-binding proposal of US$127.50 per share in cash.

The Saint Louis-based company added that it was continuing these conversations as it evaluated Bayer's offer, as well as proposals from other parties it did not name. It cautioned that there was no certainty that any deal would occur.

Some Bayer shareholders, however, continue to criticise the proposed merger, saying it would increase Bayer's exposure to agriculture at the expense of its pharmaceutical business.

"We knew that Bayer would have to bid higher and this offer is probably getting closer to succeeding, but it doesn't change our view that it presents significant risks to shareholders," said Greg Herbert, co-manager of the Jupiter Global Equity Income Fund.

"The company will be left with a highly geared balance sheet and the management effort to integrate the two businesses could easily lead to the larger pharmaceutical business being neglected."