Morgan Stanley stands to make $120m in fees for providing less than four months of advice to Monsanto on the US agribusiness’s $66bn takeover by Germany’s Bayer, the most a bank has ever collected for selling a company in dealmaking history.
The payments to financial advisers were disclosed in a Monsanto proxy filing, which also showed that the company held takeover talks with three other groups before agreeing its pending deal with the drugs-to-chemicals conglomerate.
The companies are not named, but the Financial Times has established that they are BASF, a German rival, Koch Industries, the privately held US industrial conglomerate, and Sinochem, the Chinese chemicals group. BASF declined to comment, while Koch and Sinochem did not immediately respond to a request for comment.
Despite four months of negotiations with Bayer, Monsanto was only able to persuade the bidder to raise the value of its initial offer by 5 per cent, and secure a break fee of about $2bn, which would be payable if the deal is blocked or Bayer walks away. The other prospective bidders never came close to Bayer’s interest or price.
Senior bankers said Morgan Stanley’s greater than expected fee surpassed sums paid to any individual sellside adviser in recent years. Bank of America earned a record $122m fee in 2007 for its work advising Royal Bank of Scotland on its £49bn acquisition of ABN Amro, according to Dealogic.
“This was a complicated and large transaction but this is without doubt a full fee,” said one seasoned banker who tracks deal fees closely. “It is greater than the sum of total advisory fees paid by SABMiller in the recent transaction with AB InBev, a deal twice the size and the largest UK corporate transaction completed in history.”
Morgan Stanley and other Wall Street banks beat profit expectations in the third quarter, but need to improve the performance of their core advisory businesses, which had a lacklustre period. Revenues from M&A and fundraising were mostly flat to down.
Morgan Stanley generated $1.23bn in investment banking revenues in the third quarter, down 7 per cent from a year ago, accounting for 14 per cent of the group’s net revenues.
The merger documents show that Morgan Stanley received $24m upon the announcement of the deal in September, $24m upon a Monsanto shareholder vote to approve the merger and a further $72m payable immediately before the deal closing.
Bayer is expected to face tough regulatory scrutiny as the deal will put control of more than 60 per cent of the global agribusiness in the hands of just three companies. But Morgan Stanley could still receive as much as $96m even if the deal collapses.
A person close to Morgan Stanley said the investment bank was being rewarded handsomely by Monsanto because the US seeds and crop sprays company has been advised by the same banker practically for no fee for more than a decade.
“Lars Andersson [a managing director at Morgan Stanley] has been involved at the highest level of Monsanto’s management for more than 10 years,” this person said. “Lars didn’t arrive at the last minute, he’s been with them the whole time.” The bank declined to comment.
Monsanto has also agreed to pay $45m to its other financial adviser, Ducera Partners, if the deal closes and $28m if it does not, if certain conditions are met. Ducera’s Michael Kramer, a restructuring specialist, has worked closely with Monsanto for years.
Additionally, Hugh Grant, Monsanto chief executive, stands to collect more than $132m following the sale, according to the company’s annual report, with most of that sum coming from the vesting of shares and options the long-serving manager holds. About $18m of the total stems from change of control provisions in his contract.
Fees for sellside advisers are disclosed in US proxy statements when those firms provide fairness opinions, so investors can judge any conflicts of interest in advice. Fees paid to banks advising acquirers are typically not disclosed in the US. Bayer is working with Bank of America, Credit Suisse and Rothschild and has set-up financing arrangement with five banks.
In other recent megadeals, the five financial advisers to brewer SABMiller received in aggregate $113m for their work on its $103bn sale to AB InBev. In the sale of the UK gas group BG to Shell, five financial advisers split as much as $113m.
Additional reporting by Sujeet Indap and Ben McLannahan in New York
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