Heavy regulatory scrutiny is expected to hit the $66 billion all-cash acquisition of Monsanto Company (MON) by German pharmaceutical company Bayer AG (BAYRY). Based on the fact that shares of both companies have traded lower since both firms announced their marriage, investors don't expect the deal to close.
Jamie Dinan, founder of York Capital Management, sees it another way. "I think [the merger] closes," Dinan said during Tuesday's "Fast Money Halftime Report" on CNBC. "Monsanto is basically a seed company, Bayer is tiny in seeds, and so what you find is there is virtually no overlap," Dinan explained.
The deal, which valued Monsanto at $128 per share, will be decided upon by federal and European regulators sometime in 2017. Bayer said it will finance the deal using a combination of debt and equity. If the deal is approved, it will create the world's largest maker of seeds and pesticides, which would control close to 30% share of the seeds market and 24% in pesticides. (See also: Bayer Seals $57B Monsanto Bridge Loan Syndication.)
However, "The deal is so big at $60 billion there's just not enough arbitrage money," Dinan noted. He added that from a risk-versus-reward perspective, investors stand to make "a lot" of money, while having "manageable" downside. Plus "it's almost independent of all the noise and volatility that we talk about," Dinan proclaimed.
Dinan's confidence aside, he's a part of a small minority who believes regulators will look beyond the competitive advantage this merger would bring to the combined company. As part of the transaction, Bayer agreed to pay Monsanto a break-up fee of $2 billion should the deal get blocked.
Monsanto shares closed Tuesday at $102.67, up 0.49%. Tuesday's close, which is about 20% below Bayer's offer price, suggests that there's little confidence in the market that Dinan will be proven right. On the bright side, Monsanto and its shareholders stand to gain $2 billion for their patience. (See also: Monsanto Deal Puts Bayer Stock in the Weeds.)