Skepticism abounds over Bayer’s acquisition of seed giant Monsanto. That presents an opportunity for shareholders. Monsanto announced Wednesday morning it had agreed to an acquisition by the German conglomerate for $57 billion in cash. That would be a solid outcome for Monsanto shareholders, considering Bayer’s offer rose 5% from its first approach in May. Investors, however, greeted the news with caution. Monsanto shares traded nearly 17% below the offer price on Wednesday morning. Based on the deal’s expected closing date, that is an annualized return of 15% including dividends. Antitrust concerns are the primary cause for trepidation. After all, consolidation in the sector has already taken hold, and regulators will need convincing that this deal won’t further squeeze buyers of seeds. The U.S. Senate Judiciary Committee, for instance, is set to hold a hearing next week to discuss competition in the industry. The need to assuage regulators is reflected by the long closing timeline. Bayer said Wednesday it expects the deal to close by the end of 2017. But investors who are willing to take a risk appear to be well compensated for doing so. For starters, the wide deal spread limits shareholder downside if the deal falls apart. Furthermore, Bayer will owe Monsanto a breakup fee of $2 billion in that scenario. That would cut Monsanto’s net debt significantly and equals 3% of its pre-offer market value after tax. Then too, the future of the seed business, which is cyclical by nature, is likely brighter than the recent past. Analysts expect Monsanto booked $13.3 billion in sales for fiscal 2016, which ended in August. That would be the lowest total since 2011. But analysts expect sales to jump to $15.3 billion by 2019 as crop prices rebound, according to FactSet. Those are solid consolation prizes in the event of a busted merger. And if things go right with the antitrust police, the upside is far better. Monsanto is a risk worth taking. Source - http://www.wsj.com