Trump's apparent support for Monsanto deal makes investors cautiously optimistic

By Christopher Alessi 

FRANKFURT -- Investors in Bayer AG have taken heart from President Donald Trump's apparent support for the German pharmaceuticals and chemicals firm's planned $57 billion takeover of U.S. seed giant Monsanto Co. and are cautiously optimistic the deal will pass regulatory muster.

Bayer, which reports full-year results on Wednesday, seems to have put the deal on firmer ground by reassuring President Trump last month that it is committed to investing in the U.S. and maintaining American jobs, investors and analysts said. Questions about Monsanto are expected to dominate Bayer's results, with analysts and investors seeking guidance on the takeover's status.

"They are getting closer and closer to completion," said Jim Nelson, a portfolio manager at Bayer shareholder Euro Pacific Capital. "The meeting with Trump was an incremental positive."

Mr. Nelson said that there is "still a lot of uncertainty and we have to see what happens with other mergers" under review by regulators world-wide.

Bayer shares are up roughly 20% since Mr. Trump won election in November. The company declined to comment for this article.

The Bayer-Monsanto deal is expected to face strict regulatory scrutiny in the U.S. and Europe. It comes amid consolidation in the industry, including planned tie-ups between Dow Chemical Co. and DuPont Co. and China National Chemical Corp.'s takeover of Swiss pesticide maker Syngenta Co.

Those deals are farther in the regulatory process and decisions on them could influence regulators' view of Bayer's bid for Monsanto, experts say.

Bayer Chief Executive Werner Baumann and Monsanto Chief Executive Hugh Grant met with Mr. Trump in New York on Jan. 11 to make their case for the acquisition amid uncertainty over whether foreign corporations in the U.S.--- and megamergers in general -- could face greater scrutiny under the new administration.

The Trump team appeared encouraged by the discussion. Less than a week later a spokesman for the then-president elect lauded the deal and what he said was Mr. Baumann's commitment to retain Monsanto's full workforce of 9,000 and create 3,000 new high-tech jobs in the U.S.

Soon after, Bayer said that it had committed to add "several thousand" new high-tech positions and planned to invest around $8 billion in new research and development in the U.S. over the next six years.

"They've been managing it in a smart manner," said Fabrice Theveneau of Lyxor Asset Management, a Bayer shareholder, of the German firm's early efforts to sell the deal to Mr. Trump. "If you can get access to the 'Big Man' directly, it obviously helps," Mr. Thevenau said.

Markus Manns, a portfolio manager at Union Investment which is another Bayer investor, said Mr. Baumann's meeting with Mr. Trump indicates the president is "slightly in favor" of the deal. "There were no negative tweets, so that's a good sign," Mr. Manns said of Mr. Trump.

National regulators will ultimately decide the deal's fate. That could prove more complicated in Europe where there is more skepticism over the tie-up, said Ioannis Lianos, a professor and head of global competition law and public policy at University College London.

"This deal should be seen in the context of the megadeals in this sector, " Mr, Lianos said. "When the competition authorities see so much concentration they [become] concerned," he said. Being the last deal to face review, the Bayer-Monsanto merger will likely undergo greater scrutiny, he said.

The transaction would create the world's No. 1 supplier by sales of both seeds and pesticides, creating what Mr. Lianos called a "one-stop solution for farmers" that regulators could see as undermining competition.

Other analysts have concluded that Bayer, a world leader in crop chemicals, is largely complementary with Monsanto, which dominates the seed market.

"The deal has a fair chance to succeed on the regulatory issue," said Lyxor's Mr. Theveneau.

Bayer filed its regulatory application with the U.S. Department of Justice late last year and is expected to file with the European Commission this quarter.

If successful, the acquisition of Monsanto would reshape Bayer's portfolio around agriculture. Bayer's crop-science division would account for roughly half of group sales, up from about 30% in 2015, while health care would make up the other half, down from 70%.

That was initially a concern for many investors, a number of whom openly opposed the deal when Mr. Baumann first bid for Monsanto in May.

"We would have preferred for them to refocus on the pharma business," said Euro Pacific Capital's Mr. Nelson. "We are somewhat resigned to [the deal] at this point. The more time goes by, it seems more likely it will get done."

Write to Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

February 21, 2017 02:47 ET (07:47 GMT)