With the Monsanto-Bayer deal added to the mix, the probability that each of the proposed seed and crop chemical tie-ups will be approved has decreased somewhat.
finally accepting Bayer
's purchase offer, antitrust regulators have a full plate of seed and crop chemical tie-ups to review. With several potential deals being considered together, we think the probability that each of the deals will be approved has decreased compared with a scenario where each deal faces the regulatory bodies on its own.
Jeffrey Stafford, CFA, is director of energy and utilities research for Morningstar.
Still, we think it's more likely than not that all of the deals currently on the table--Bayer's purchase of Monsanto, the merger between Dow Chemical and DuPont, and ChemChina's purchase of Syngenta--will eventually receive regulatory approval. This view is based on the general lack of product overlap between the companies involved and our belief that selling seeds and crop chemicals together is not a path to increasing competitive advantage. We also think there will be more than enough competition among the remaining players to foster future industry innovations. We expect relatively minor divestitures will appease regulators in areas where product portfolios are sufficiently similar.
With all of the deals now in front of regulators, we have adjusted our probabilities of each deal closing and subsequently amended our fair value estimates for many of the major seed and crop chemical players. We've raised our Monsanto fair value estimate to $126 per share from $120 to reflect the acceptance of Bayer's $128 per share offer but still account for the chance that the deal fails to clear regulatory hurdles. We've trimmed our fair value estimates for Dow Chemical, DuPont, and Syngenta, as we believe adding Bayer-Monsanto to the regulatory mix somewhat decreases the probability that the other deals will pass. Our Dow Chemical fair value estimate has dropped to $50 per share from $53, and our DuPont fair value estimate has fallen to $65 per share from $69. We've decreased our Syngenta fair value estimate to $90 per ADR (CHF 438 per share) from $92 (CHF 445).
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