Bayer shares jump on Monsanto crop science interest

FRANKFURT (Reuters) - Shares in German drugs and pesticides maker Bayer BAYGn.DE rose more than 5 percent on Monday after sources close to the matter told Reuters that Monsanto MON.N was interested in a deal with its crop science business.

The corporate logo of Bayer is seen at the headquarters building in Caracas March 1, 2016. REUTERS/Marco Bello

The sources said on Friday the two companies had held talks over Bayer's agricultural assets, the world's second-biggest crop chemicals business by sales after Switzerland's Syngenta SYNN.S. Bayer declined to comment.

Bayer’s shares gained as much as 5.4 percent on Monday, and at 1235 GMT were up 3.2 percent at 102.45 euros, a 7-week high.

Monsanto’s move underscores the U.S. seed maker’s determination to expand after Syngenta rejected its takeover approaches last year.

Shares in German chemicals group BASF BASFn.DE, the world's third-largest maker of crop chemicals, were also higher, up 1.4 percent, though trailing the European chemical sector's .SX4P gain of 1.6 percent.

Bloomberg at the weekend cited sources as saying Monsanto had been in contact with both Bayer and BASF about deals in agricultural chemicals. BASF declined to comment.

UBS analyst Alexandra Hauber, who rates Bayer “neutral”, said Bayer’s business could be a better fit for Monsanto.

“Bayer’s crop science business is stronger than BASF in terms of market share, which should put Bayer in more favorable negotiation position vs BASF,” she wrote in a note.

Hauber added that, due to possible objections from competition regulators, a marketing collaboration seemed the most likely result of any discussions.

UBS values Bayer’s crop science business at about 40 billion euros ($45 billion), or 15 times its estimated 2017 earnings before interest, taxes, depreciation and amortization (EBITDA).

Bayer as a group is trading at 9.1 times its estimated EBITDA for the next 12 months, according to Thomson Reuters data.

Syngenta agreed earlier this year to be acquired by ChemChina for $43 billion, or about 17 times its estimated future EBITDA.

“In theory, (a deal between Monsanto and Bayer) is a logical next step given Monsanto’s strength in seeds and Bayer’s in crop protection. However, we do not see Bayer to be in any rush to sell its division,” Deutsche Bank analysts wrote in a note.

Bayer’s crop science division has businesses in seeds, crop protection and non-agricultural pest control. It had sales of 10.4 billion euros in 2015 and adjusted EBITDA of 2.42 billion.

Bayer said last year it planned to keep its crop chemicals business, describing it as an “integral part” of the group.

Reporting by Ludwig Burger; Editing by Mark Potter