Argus Downgrades Monsanto After DOJ Blesses Bayer Merger

The U.S. Department of Justice's move to approve German pharma company Bayer AG's acquisition of U.S.-based Monsanto Company MON prompted at least one Wall Street analyst to turn bearish on the stock.

The Analyst

Argus' Bill Selesky downgraded Monsanto's stock rating from Buy to Sell.

The Thesis

The DOJ offered its seal of approval for Bayer's proposed acquisition of Monsanto, but before the deal can close, regulators from Canada and Mexico must sign off as well, Selesky said in the downgrade note. Nevertheless, both companies expect the deal to be completed by the end of the second quarter. (See the analyst's track record here.) 

A downgrade of Monsanto's stock is warranted, as upside above the $128 price tag on the deal is unlikely, Selesky said. It should be noted the stock is trading at a discount to the $128 acquisition cost, as it closed at $125.40 on Friday.

Bayer's rationale for the acquisition was that it will increase its core EPS by a mid-single digit range in the first year after the deal closes, the analyst said. It should increase at a double-digit rate in the following years, he said. In addition, the deal is expected to generate synergies of $1.5 billion in the third year after closing.

Price Action

Shares of Monsanto were trading down slightly at $125.39 at the time of publication Monday morning. 

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