Morgan Stanley stands to make $120m in charges for offering lower than 4 months of recommendation to Monsanto on the US agribusiness’s $66bn takeover by Germany’s Bayer, probably the most a financial institution has ever collected for promoting an organization in dealmaking historical past.
The funds to monetary advisers have been disclosed in a Monsanto proxy submitting, which additionally confirmed that the corporate held takeover talks with three different teams earlier than agreeing its pending cope with the medicine-to-chemical compounds conglomerate.
The businesses aren’t named, however the Monetary Occasions has established that they’re BASF, a German rival, Koch Industries, the privately held US industrial conglomerate, and Sinochem, the Chinese language chemical compounds group. BASF declined to remark, whereas Koch and Sinochem didn’t instantly reply to a request for remark.
Regardless of 4 months of negotiations with Bayer, Monsanto was solely capable of persuade the bidder to boost the worth of its preliminary supply by 5 per cent, and safe a break payment of about $2bn which might be payable if the deal is blocked or Bayer walks away. The opposite potential bidders by no means got here near Bayer’s curiosity or worth.
Senior bankers stated Morgan Stanley’s higher than anticipated payment surpassed sums paid to any particular person sellside adviser in recent times. Financial institution of America earned a report $122m charge in 2007 for its work advising Royal Financial institution of Scotland on its £49bn acquisition of ABN Amro, in response to Dealogic.
“This was a sophisticated and enormous transaction however that is doubtless a full payment,” stated one seasoned banker who tracks deal charges intently. “It’s higher than the sum of complete advisory charges paid by SABMiller within the current transaction with AB InBev, a deal twice the dimensions and the most important UK company transaction accomplished in historical past.”
Morgan Stanley and different Wall Road banks beat revenue expectations within the third quarter, however want to enhance the efficiency of their core advisory companies, which had a lacklustre interval. Revenues from M&A and fundraising have been principally flat to down.
Morgan Stanley generated $1.23bn in funding banking revenues within the third quarter, down 7 per cent from a yr in the past, accounting for 14 per cent of the group’s internet revenues.
The merger paperwork present that Morgan Stanley acquired $24m upon the announcement of the deal in September, $24m upon a Monsanto shareholder vote to approve the merger and an extra $72m payable instantly earlier than the deal closing.
Bayer is predicted to face robust regulatory scrutiny because the deal will put management of greater than 60 per cent of the worldwide agribusiness within the palms of simply three corporations. However Morgan Stanley might nonetheless obtain as a lot as $96m even when the deal collapses.
An individual near Morgan Stanley stated the funding financial institution was being rewarded handsomely by Monsanto as a result of the US seeds and crop sprays firm has been suggested by the identical banker virtually for no payment for greater than a decade.
“Lars Andersson [a managing director at Morgan Stanley] has been concerned on the highest degree of Monsanto’s administration for greater than 10 years,” this individual stated. “Lars didn’t arrive on the final minute, he’s been with them the entire time.” The financial institution declined to remark.
Monsanto has additionally agreed to pay $45m to its different monetary adviser, Ducera Companions, if the deal closes and $28m if it doesn’t, if sure circumstances are met. Ducera’s Michael Kramer has labored intently with Monsanto for years.
Moreover, Hugh Grant, Monsanto chief government, stands to gather greater than $132m following the sale, based on the corporate’s annual report, with most of that sum coming from the vesting of shares and choices the lengthy-serving supervisor holds. About $18m of the full stems from change of management provisions in his contract.
Charges for sellside advisers are disclosed in US proxy statements when these companies present equity opinions, so buyers can decide any conflicts of curiosity in recommendation. Charges paid to banks advising acquirers are sometimes not disclosed within the US. Bayer is working with Financial institution of America, Credit score Suisse and Rothschild and has set-up financing association with 5 banks.
In different current megadeals, the 5 monetary advisers to brewer SABMiller acquired in combination $113m for his or her work on its $103bn sale to AB InBev. Within the sale of the UK fuel group BG to Shell, 5 monetary advisers cut up as a lot as $113m.
Further reporting by Sujeet Indap and Ben McLannahan in New York