By Greg Roumeliotis and Michael Flaherty
(Reuters) - U.S. seeds company Monsanto Co <MON.N> is negotiating the terms of a confidentiality agreement with Bayer AG <BAYGn.DE> that would allow extensive due diligence, after the German drug and crop chemical group raised its acquisition bid to more than $64 billion, a source familiar with the matter said on Monday.
While there is no certainty the latest talks between the two companies will result in a confidentiality pact, let alone in any deal, the move indicates that Bayer's latest offer may at least help the negotiations make progress.
Bayer said last week it had sweetened its acquisition offer for Monsanto to $125 per share in cash from $122 per share and offered it a $1.5 billion reverse antitrust breakup fee.
Monsanto would still require Bayer to raise its offer further in order to agree to a sale, the source said. The source asked not to be identified because the negotiations are confidential. Bayer and Monsanto declined to comment.
Monsanto shares closed 2.9 percent higher at $106.44 on Monday on the news. Bayer shares had previously ended trading in Frankfurt down 1.1 percent at 92.90 euros ($102.85).
Access to confidential information has been a major sticking point in Bayer's negotiations with Monsanto ever since the Leverkusen, Germany-based company offered to acquire its smaller St. Louis, Missouri-based peer in May.
Monsanto Chief Executive Hugh Grant said last month that his company was in talks with Bayer and other companies in its sector about "alternative strategic options." He did not name the other companies, but Reuters has previously reported that Monsanto had discussed a business combination with BASF SE <BAYGn.DE>.
Bayer argued last week that it had comprehensively addressed Monsanto's questions about financing and regulatory matters and said it was prepared to make certain commitments to regulators, if required, to complete a deal.
Monsanto responded by noting that its board would review Bayer's latest proposal, in consultation with its financial and legal advisers.
The seeds and agrochemicals industry, long dominated by six large companies, has been jolted by several large deals in the past year as low crop prices and belt-tightening by farmers pressured earnings.
Syngenta AG <SYNN.S>, which Monsanto tried to buy last year, agreed in February to be acquired by ChemChina for $43 billion, while Dow Chemical <DOW.N> and DuPont <DD.N> struck a $130 billion megamerger last year. ChemChina and Syngenta, however, are still waiting for the United States to clear their deal based on any national security concerns.
In a sign of how hedge funds are eyeing opportunities in the latest round of talks between the companies, Corvex Management LP, the activist fund run by former Carl Icahn protégé Keith Meister, has amassed small stakes in both Monsanto and Bayer, sources said on Monday.
Corvex, which also owned Monsanto stock two years ago, would favor a sale to Bayer for a price it deems sufficiently rich, the sources said.
Activist hedge fund Glenview Capital Management LLC already owns a 2.5 percent stake in Monsanto, making it the company's seventh-largest shareholder, according to regulatory filings.
Bayer's relatively modest price increase in its offer last week also reflected the view that Monsanto's recent poor earnings have weighed on its valuation.
Monsanto said last month net income tumbled more than 37 percent to $717 million in the quarter ended on May 31. It cited a global glut of generic glyphosate, the active ingredient in its Roundup herbicide, and delays in securing European Union import approval for its next-generation biotech soybeans.
(Reporting by Greg Roumeliotis and Michael Flaherty in New York; Editing by Andrew Hay and Matthew Lewis)