Bayer, BASF in Talks for Vegetable Seeds Business Sell-Off

Bayer AG BAYRY announced that it is in exclusive talks with BASF for the divestiture of its entire vegetable seeds business. The seed businesses which are to be divested include the global cotton seed business (excluding India and South Africa), the canola business in North America and Europe, and the soybean seed business. Through this move, Bayer intends to address the concerns of European Union.

Notably, the company intends to divest these assets as part of its strategy to complete the planned acquisition of Monsanto Co. MON.

So far this year, Bayer’s shares have underperformed the industry. The stock has declined 8.1% compared with the industry’s gain of 8.9%.

In October 2017, the company inked a deal to sell selected Crop Science businesses to BASF for €5.9 billion. Per the deal, the assets to be divested include Bayer’s global glufosinate-ammonium non-selective herbicide business and the related LibertyLink technology for herbicide tolerance as well as its seed businesses for key row crops in select markets.

The transaction includes respective research and development capabilities as well. In 2017, revenues from these businesses amounted to around €1.6 billion.

In September 2016, Bayer signed a definitive merger agreement to acquire United States’ seed giant Monsanto in a deal worth approximately $66 billion. The combined business is expected to boost Bayer’s Crop Science business and provide accretion to its core earnings from the first full year of the closing of the transaction, followed by double-digit percentage growth.

The divestiture is subject to the closure of Monsanto deal and Bayer is working with the relevant authorities to end the acquisition by second quarter of 2018. The European Commission recently extended the examination deadline for the acquisition until Apr 5, 2018.  In fact, the company plans to utilize the net proceeds from the divestiture for partially refinancing the planned acquisition of Monsanto.

Bayer Aktiengesellschaft Price

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Zacks Rank & Stocks to Consider

Bayer carries a Zacks Rank #4 (Sell).

A few better-ranked stocks from the same space are Regeneron REGN and Ligand Pharmaceuticals LGND. Both Regeneron and Ligand sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron’s earnings per share estimates have moved up from $17.13 to $18.65 and from $20.37 to $21.56 for 2018 and 2019, respectively in the last 30 days. The company pulled off a positive earnings surprise in three of the last four quarters, with an average beat of 9.15%.

Ligand’s earnings per share estimates have moved up $3.54 to $4.15 from $4.75 to $5.75 for 2018 and 2019, respectively, over the last 30 days. The company delivered positive earnings surprises in three of the trailing four quarters, with an average beat of 24.88%. The company’s shares have rallied 57.2% over a year.

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