About the company
Monsanto Company is a publicly traded American multinational agrochemical and agricultural biotechnology corporation. It is headquartered in Creve Coeur, Greater St. Louis, Missouri. Monsanto is a leading producer of genetically engineered seed and Roundup, a glyphosate-based herbicide.
Time to buy the shares?
Yes. We recently took a 4% position in our own equity fund.
Bayer’s bid for Monsanto
Bayer aims to pull off the biggest, most transformative deal of its 152-year history in 2017 as it attempts to meld its own pesticides with Monsanto’s seeds and herbicides.
Bayer signalled that it remains confident about completing its $66 billion takeover of Monsanto by the end of the year amid concern it may struggle to win over regulators.
Our stance on Monsanto
We suggest adding Monsanto to a portfolio with a price target of $128 per share. We are confident the deal will go through, and that will crystalize 12% from the current price. Additionally, if the deal doesn’t go through Bayer would have to pay Monsanto $1.5 billion.
Even without the deal, we like Monsanto. I do not think we should lose this opportunity.
Investment rationale
Whether or not the deal goes through, all boils down to the decision of the regulator.
However, we are confident the deal will go through. Dow and DuPont are to receive a regulatory judgment from the EU on their merger on 4th April 2017, and Syngenta and ChemChina are to receive a ruling on 12th April 2017.
Commentary from the CEOs of DuPont and Syngenta suggest that the deals are likely to be approved, which is consistent with press reports from Europe, and the trading patterns of Dow (11% higher YTD) and DuPont (9% higher YTD). It may be the case that approvals from Europe trigger a meaningful closing of the arbitrage spread in Monsanto versus the offer price.
We also note that Berkshire Hathaway has taken an 8 million share position in Monsanto, according to its recent filing.
Conclusion on the equity market
The world economy seems to be recovering steadily. Expectations of economic growth often accompanied by higher interest rate expectations are having a twofold impact on equity valuations. The twin effect; an expected earnings increase from higher economic growth and the expected rotation from fixed income to equities as a result of higher interest rates, is dramatic.
We expect 2017 to continue to be positive for European Equities. Still, in the short term, elections in the Netherlands and France and the start of Brexit negotiations may increase short-term market volatility.
Disclaimer: This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.