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By Christopher Alessi and Eyk Henning 

FRANKFURT -- Bayer AG said it remained committed to its pursuit of Monsanto Co., but the U.S. seed-and-pesticide giant's rejection of its $62 billion takeover offer may leave little room for maneuver.

As Bayer ponders its next move, investors and analysts are questioning how much the big German drug and chemical maker could afford to raise its all-cash, $122-a-share bid.

Some investors said Wednesday that offer was already a stretch for Bayer, and that the company isn't in a position to increase it materially because its stock has plummeted more than 12% since news of the takeover effort surfaced about two weeks ago. On Wednesday, the shares closed unchanged at EUR87.15 ($97.10) in Frankfurt trading.

To clinch a deal creating the world's largest agrochemicals company, Bayer would have to craft a new bid high enough to satisfy Monsanto but not rich enough to spook its own shareholders, investors and analysts said.

Monsanto, the world's top seed producer, said Tuesday that Bayer's current proposal "significantly undervalues" the company and is "financially inadequate." But Monsanto Chief Executive Hugh Grant said there could be "substantial benefits" to a tie-up with Bayer, and that the U.S. company was open to further talks.

Bayer, a leading producer of crop chemicals, responded by reiterating its bid and expressing confidence it could address Monsanto's financial and regulatory concerns.

"Bayer remains committed to working together to complete this mutually compelling transaction," Bayer CEO Werner Baumann said Tuesday night.

Mr. Baumann, a 28-year Bayer veteran who stepped in as CEO just over three weeks ago, has been trying to sell shareholders on the proposed takeover, which some fear would saddle the company with too much debt.

At a lunch meeting with several investors in London on Tuesday, Mr. Baumann characterized the deal as the last crucial step in the global consolidation of the agrochemical industry, which he said could solidify the sector for decades, according to people familiar with the matter.

These people said Mr. Baumann also responded to investors who would have preferred a large pharmaceutical-sector acquisition, saying most available targets wouldn't help Bayer's pipeline and cash profile much.

Analysts and investors said Bayer might have to raise its offer to at least $135 a share to interest Monsanto, forcing the German company to enact a much higher capital increase than it initially suggested.

Such a move likely wouldn't require Bayer to seek shareholder approval for a bid. Bayer's management board can issue up to 35% of Bayer's outstanding capital to shareholders for cash without shareholder approval, according to a resolution at its annual meeting last year. The company could also issue convertible bonds.

Bayer said it would finance its current bid, which represents a 37% premium to Monsanto's closing price on May 9, with a combination of debt and equity, including a share sale valued at around 25% of the total transaction value. That means the company would launch a capital increase of around $15.4 billion. Bayer's market capitalization is $80 billion.

Bayer needs to persuade shareholders the deal makes sense and comes at the right price to prevent its share price from falling further.

At least initially, investors voiced skepticism not just about the price but also about whether the acquisition would tip the company's business too far toward crop science, and away from its health-care roots.

"It's a concern that crop science would become a very large part of the company," said Markus Manns, a portfolio manager at Union Investment, a Bayer shareholder. Mr. Manns said Bayer's pharmaceutical and over-the-counter drug businesses were more attractive to investors because the agrochemical division tended to be more volatile.

Investors also expressed doubts about the size of Bayer's target. "If Bayer were to find a 'mini-Monsanto,' it would make more sense," said Mr. Manns.

"Monsanto is a good company and the deal seems to be a good fit, as both companies have a strong position in different markets and different product ranges that complement one another," said another Bayer investor. This person added, however, that the current price is "quite high" and "Monsanto is so big that it might be hard to integrate the company."

With the addition of Monsanto, Bayer's crop-science business would account for about half of the company's revenue, analysts say. Last year's total group sales were EUR46.3 billion, including EUR10.37 billion in revenue from its crop-science operation.

Former Bayer CEO Marijn Dekkers, who stepped down at the end of April, built up Bayer's health-care profile by presiding over the launch of five new blockbuster drugs and the $14.2 billion acquisition of U.S.-based Merck & Co.'s consumer-care business.

At the same time he sought to focus Bayer more squarely on its so-called life-science businesses, including health care and agrochemicals. As part of that effort, Mr. Dekkers late last year spun off part of the group's specialty-plastics business, now known as Covestro AG.

Bayer's bid for Monsanto comes after major deals were struck in recent months by rival seed developers Syngenta AG, Dow Chemical Co. and DuPont Co. Analysts have concluded this would be Bayer's last chance to participate in that deal-making frenzy.

Write to Christopher Alessi at christopher.alessi@wsj.com and Eyk Henning at eyk.henning@wsj.com

(END) Dow Jones Newswires

May 26, 2016 02:48 ET (06:48 GMT)