Just when markets believed the lack of mergers and acquisitions (M&A) in Europe was here to stay, Bayer AG (a global pharmaceutical firm based in Germany) has made a $62 billion bid for Monsanto (a multinational agrochemical firm based in the US).
The tie-up would not only result in the biggest agricultural supplier globally, more significantly for the region, it would supposedly be the largest outbound takeover by a German company on record. It could also result in the beginning of a flurry of deal-making in Europe.
According to some strategists, The European Central Bank’s new easing measures that came into effect in May 2016 would further increase the M&A activity.
Again, an increase in corporate re-leveraging would see more M&A. The ECB is expected to establish the foundation for European companies to take over firms located globally.
However, not everyone is supporting renewed interest for overseas acquisitions. Some Bayer shareholders are not happy with the new approach. The bid has been met with caution by certain investors.
The senior management of Bayer does not see any apparent financing or regulatory risks with the all-cash transaction. The German firm plans to fund the offer with a mix of debt and equity that would also consist of a capital hike.
The market is waiting for a response from the credit agencies and the jury is still out whether the credit agencies would approve the deal.
Once the deal gets approved, Monsanto would be burdened with a net debt ratio of about four times earnings. That could lead to some questions about the firm’s ability for future strategic investments in other areas of business.
It would also be viewed as a positive correction in business preparedness to re-leverage. Overall, Bayer’s goal is extremely strategic in a highly favourable credit scenario.
Against the background of the referendum in the UK on its EU membership and the reducing influence of Europe, the region could benefit immensely from corporates based in Germany acquiring firms overseas.