People have to eat. It’s that simple. You may put off buying a new iPad or another car, but you can’t put off feeding yourself and your family. So when looking for the surest long-term investments, your best bet is to follow the food.
Regardless of your feelings on their GMOs, pesticides, herbicides, fertilizers, and unscrupulous business practices, agriculture companies like Monsanto (NYSE: MON), DuPont (NYSE: DD), and Syngenta AG (NYSE: SYT) are the only ones that can do anything to help battle the growing global food shortage.
And in an industry where there are already only a handful of companies providing the majority of the seed and chemicals that farmers need in order to grow our food, mergers and acquisitions are making it even smaller.
Most recently, Bayer AG (OTC: BAYRY) — the seventh-largest seed seller and global leader in agrochemicals — put in a bid to buy Monsanto, the number one seed retailer in the world and 12th largest agrochemical business to boot.
Just to give you an idea of how highly prized Monsanto’s business units are, Bayer offered an all-cash bid of $62 BILLION (that’s about $122 per share) for Monsanto when MON shares were trading a little over $100. Talk about a premium!
Best part? MON management unanimously rejected the bid because they know the company is worth way more in the long run. And Bayer agrees — it wants to sweeten the deal and get the Monsanto brand in the Bayer fold. We’re talking a potential new bid up to $140 per share for Monsanto stock.
There’s obviously going to be some regulatory hurdles to overcome — selling off assets and spinning off business units to appease the meddling governments in the countries where they do business. But chances are, this deal is going to happen, and we’re going to see the creation of the largest ag business in the history of ever.
And this is just the latest in a string of deals between some of the biggest, baddest farming companies on the planet. Syngenta — the number three seed company and number 14 agrochemical retailer in the world — just got bought by a Chinese investment firm.
And DuPont — the number two seed seller and number seven agrochemical company — is planning to merge with Dow Chemicals (NYSE: DOW) to try to gain a competitive advantage in a very tight market.
We’ve already seen some serious ups and downs in stock price for both DuPont and Syngenta and a huge pop for Monsanto after the bid was announced (and again after the bid was rejected and analysts started to opine on the real value of the shares). But as the mergers and acquisitions involving all three start to show that they’re really going to happen, we’ll see the stock prices head up toward the offer price.
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So keep an eye on all three targets and look for dips in confidence that lead to dips in price. Monsanto is still up from the pre-offer price, but the premium from current prices is still a hefty 18% from even the lowest analyst estimate of the next bid Bayer will put on the table.
Syngenta shares are also trading way below the approved purchase price of around $93 — giving investors a potential premium of 17.9%, to be exact. The Dow–DuPont deal is all stock, so it’s a little tougher to calculate the premium for either set of shares, but the combined company will have a market cap of around $130 billion and is expected to deliver cost synergies of around $4 billion within the first two years.
If you’re not big on risk, you can just wait for the approvals to go through. Companies that are getting bought usually settle at about 6% off the offer price even when a deal is sure to happen — and who doesn’t like a sure thing?
But if 6% doesn’t get you excited, 1) I don’t blame you, and 2) there’s another smaller seed company that is looking like a prime target for some of these big boys to gobble up in the race for market share.
It’s a Chinese company called Origin Agritech (NASDAQ: SEED) that’s been working on its own varieties of hybrid and genetically modified seeds since 1997. What’s really interesting about this company is its size: it’s tiny. But it’s a supplier to many Chinese farmers.
Why buy from this small company, you ask? Well, it’s simple. The Chinese government hasn’t approved all of the Monsanto, DuPont, and Syngenta GMO strains yet, and this company is in a prime position to capitalize on that. Even better is the potential for a buyout by one of the larger international seed companies. It would give them a secret backdoor into the Chinese farm market and give investors the payout of a lifetime.
China is a huge market, and as its economy moves from manufacturing to consumer-driven, the opportunities for companies like SEED and even the Big Three are practically limitless. And the best news for American investors is that Origin’s shares trade on the Nasdaq, so there’s no need to convert your dollars to yuan or renminbi and no need to open a global trading account.
So here’s to patience, smart investing, and feeding the planet!
Jason Williams
Follow me on Twitter @AllBeingsEqual
