First came the initial bid, then the rejection. Now, the next step in Bayer AG’s quest to buy Monsanto Co. and create the world’s largest agricultural company is likely to hinge on whether the U.S. seed giant will agree to open its books.

Bayer made its $62 billion offer last month and Monsanto rejected the price as too low while also saying it was open to further discussions. In recent days, Bayer sent Monsanto a letter reiterating its $122-a-share proposal and seeking due diligence, a move rebuffed by Monsanto, which is refusing to grant such access until the German company raises its offer, the Wall Street Journal reported June 10.

Both sides need to sit in a room to break the stalemate and Monsanto should show Bayer its books since it’s the takeover target, according to Piper Jaffray Cos. analyst  Brett Wong. While Monsanto is probably seeking a price in the low $140s range, Bayer is unlikely to budge on its offer without a look at confidential company data, he said Monday in an interview.

“You basically have Monsanto wanting a higher price before they let them take a look at their books and Bayer wants to look at their books before they offer a higher price,” said Minneapolis-based Wong, who has an overweight rating on Monsanto’s stock. “I just think there’s probably going to be some time when there’s a tug-of-war and somebody will break.”

Industry consolidation

Spokesmen for both companies declined to comment on any deal discussions and whether they include possible diligence.

Monsanto is the largest seed supplier and a pioneer of genetically modified crops, which now account for the majority of corn and soybeans grown in the U.S., while Bayer’s strength is in crop chemicals. The proposed deal, along with China National Chemical Corp.’s planned acquisition of Switzerland’s Syngenta AG and the Dow Chemical Co.-DuPont Co. merger, would mark the reshaping of the global agricultural industry, potentially leaving three corporations to dominate the market for key crop inputs.

The combination of St. Louis-based Monsanto and its German suitor makes sense to at least some investors. The merger would offer farmers an integrated supplier of pesticides and seeds while also giving Bayer access to Monsanto’s analytical tools, said Kelly Wiesbrock, a managing director at San Francisco-based Harvest Capital Strategies LLC, which manages $2.3 billion of assets, including Monsanto shares.

‘Game of Chicken’

Monsanto doesn’t "have an intention of giving the firm away, nor do they have intentions on completely ceding control," Wiesbrock said. "They want a seat at the table and I think they’ve earned it."

Shareholders are likely to press Monsanto to agree to a deal, said Chris Shaw, an analyst at Monness Crespi Hardt & Co. Monsanto rose 0.3% to $107.33 at 8:21 a.m. in New York Tuesday before the start of regular trading.

“It’s a little bit a game of chicken,” Wong said. “You’ve got these proud, massive companies that are trying to do a deal. A major deal.”

To contact the reporters on this story:

Jen Skerritt in Winnipeg at [email protected]

Lydia Mulvany in Chicago at [email protected]

To contact the editors responsible for this story:

Simon Casey at [email protected]

Carlos Caminada

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