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Today’s Trading Edge: Regulatory challenges may prevent proposed merger between Monsanto and Bayer

Posted by WorldWideMarkets . on Sep 14, 2016 6:40:59 PM


Monsanto Company (MON) shares rallied just 0.62% to $106.76, well shy of Bayer’s all-cash offer of $128/share to acquire the company. The total deal would be valued at $66 billion. 

Monsanto's Board of Directors, Bayer's Board of Management and Bayer's Supervisory Board have unanimously approved the agreement. Based on Monsanto's closing share price on May 9, 2016, the day before Bayer's first written proposal to Monsanto, the offer represents a premium of 44 percent to that price.

The acquisition is subject to customary closing conditions, including Monsanto shareholder approval of the merger agreement and receipt of required regulatory approvals. Closing is expected by the end of 2017. The companies will work diligently with regulators to ensure a successful closing. In addition, Bayer has committed to a $2 billion reverse antitrust break fee, reaffirming its confidence that it will obtain the necessary regulatory approvals.

The proposed merger however is likely to have a lengthy approval process and some analyst only see a 50% chance of this deal going through.

Price action on the MON daily chart shows that price is tentatively respecting the 50-day SMA average which currently trades at $105.55.  If the bearish move continues, we could see price find support from the $98.00 level. 

If the price is able to recapture the psychological $110 level, key resistance will come from the $115 level. 

The Trade: Buy MON at $103.50, with a stop loss at $98.50 and a take profit at $113.50.  The Risk/Reward Ratio is 1:2

Topics: Equities Market, Stocks, US equities


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