London-based fund management group Henderson Global Investors has attacked Bayer’s proposed takeover of US seeds company Monsanto.
Asim Rahman, Henderson’s European equities fund manager, also demanded there be a shareholder vote on the deal, although it does not technically require investor approval.
Henderson is understood to have reduced its stake in Bayer since news of the deal emerged in May.
“For us, the strength of Bayer as a long term investment has been called into question by its potential takeover of Monsanto,” said Rahman.
The letter was sent to Bayer on 7 June but, after Bayer improved its offer for Monsanto to $64bn (£48bn) last week, Henderson has today shared an extract from it.
Rahman said: “After meeting with Bayer management at the end of May, we were still not convinced the transaction will create value. The acquisition terms reflect paying a very high valuation multiple and the deal could constrain inorganic investment in the pharma division at a time when the future pipeline of this division is a key concern for investors. Following a future integration of Monsanto, Bayer could find itself with a weakened pharma business.”
He added: “Even if we accept the strategic rationale for the deal, it still represents a major departure from a strategy of focus and integration of existing acquisitions that Bayer had consistently communicated to the market for a number of years.”
On the shareholder vote, Rahman said:
We cannot accept the board’s decision to deny shareholders any opportunity to vote on it. This choice implies the board is comfortable pressing ahead with the takeover without the approval of a majority of shareholders. We clearly hope this isn’t the case and have urged the board via our most recent correspondence to reconsider this conclusion.
Technically the transaction does not require shareholder approval, but an endorsement by shareholders would provide an opportunity to repair market trust in the investment case. Even if the Monsanto acquisition is successfully completed, without restoring investors’ faith in the story, it is likely the new Bayer would suffer from an increased conglomerate discount and would ensure the valuation would remain at a material and permanent disadvantage to peers.