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Bayer’s Monsanto Bid Lifts Agribusiness ETFs

editor@etftrends.com (ETF Trends)

Materials and the more targeted agribusiness sector-related exchange traded funds stood out in a sideways trending market after German pharmaceutical and chemicals giant Bayers AG made an all-cash bid for Monsanto Co. (MON).

Bayer confirmed that it approached Monsanto over a takeover bid for $62 billion, or a $122 per share bid, reports Christopher Alessi for Dow Jones Business News.

Monsanto said it was “carefully reviewing” the proposal and declined to comment further.

News of the bid sent MON shares surging 5.0% mid-Monday.

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Meanwhile, the VanEck Vectors Agribusiness ETF (MOO) gained 1.2%, iShares MSCI Global Agriculture Producers ETF (VEGI) rose 1.2% and Materials Select Sector SPDR (XLB) increased 1.4%.

MON is the largest component of the funds, accounting for 8.1% of MOO’s underlying holdings, 13.6% of VEGI and 8.7% of XLB.

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Both MOO and VEGI track global agricultural companies engaged in agri-chemicals, animal health , fertilizers, seeds, traits, farming, irrigation, farm machinery and various agricultural production. XLB tracks the broader materials sector, including a 71.6% tilt toward the chemicals sub-sector, which covers agri-chemical and fertilizer companies.

Bayer said it would finance the Monsanto deal through a combination of debt and equity, including a share sale worth 25% of the total transaction.

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However, the German company faces large investor scrutiny as many are concerned about the firm’s relatively high debt levels. On the other hand, Bayer’s Chief Financial Officer Johannes Dietsch argued that the future cash-flow generation from a combined Bayer and Monsanto would allow the company to quickly deleverage.

“We will increase our debt level on our balance sheet substantially,” Dietsch said on a conference call. “We are willing to take a higher debt level with a strong desire to reduce that debt level thereafter with strong cash flows.”

For more information on the agribusiness market, visit our agribusiness category .

VanEck Vectors Agribusiness ETF