The St Louis-based company, with a market value of $42bn (€37.2bn), said it’s reviewing the offer but didn’t disclose the terms of the proposal.
Bayer, confirming the bid, said the combination would bolster its position as a life sciences company.
Merging Monsanto with the company that invented aspirin would bring together brands such as Roundup, Monsanto’s blockbuster herbicide, and Sivanto, a new Bayer insecticide.
Shares of Bayer plunged amid concern that a large purchase would weigh on its credit rating and force the company to sell more shares.
The proposal by Werner Baumann, who has been at Bayer’s helm for less than a month, follows Monsanto’s failed attempt to buy Syngenta and the proposed merger of Dow Chemical and DuPont.
To help finance its quest to buy the world’s largest seed maker, Bayer is considering asset disposals and a share sale.
The German company is exploring the potential disposal of its animal-health business and the remaining 69% stake in plastics business Covestro.
The Covestro holding is worth about €4.9bn. If Bayer buys Monsanto, it could be the biggest acquisition globally this year and the largest German deal ever.
A takeover of Monsanto would require an enterprise value of as much as €65bn, according to analysts at Citigroup.
Bayer fell 9% to the lowest in more than two-and-a-half years. The shares have dropped by almost a quarter this year. Monsanto shares rose 5%.
Monsanto is particularly vulnerable to a takeover after piling up a mountain of problems this year.
The company has cut its earnings forecast, clashed with some of the world’s largest commodity trading companies and become locked in disputes with the governments of Argentina and India.
“It’s a relentless string of bad news,” Jonas Oxgaard, an analyst at Sanford C. Bernstein in New York, said. “It’s almost like they forgot to sacrifice a goat to the gods.”