Monsanto, the world's largest seed company, last night turned down Bayer $62 billion acquisition bid as "incomplete and financially inadequate", but said it was open to engage further in negotiations.
Monsanto's decision puts pressure on Bayer to decide whether to raise its bid.
The company has faced criticism from some shareholders that its $122-per-share cash offer is already too high.
"We believe in the substantial benefits an integrated strategy could provide to growers and broader society, and we have long respected Bayer’s business," Monsanto's chief executive Hugh Grant said.
"However, the current proposal significantly undervalues our company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition," he added.
Bayer responded that its $122 per share offer represents "full and certain value" for Monsanto shareholders, but that it looks forward to engaging in constructive discussions with Monsanto.
"We are confident that we can address any potential financing or regulatory matters related to the transaction. Bayer remains committed to working together to complete this mutually compelling transaction," Bayer's chief executive Werner Baumann said in a statement.
It was not clear what price Monsanto would be willing to sell for but several analysts have suggested Bayer would have to pay much more than the current offer to clinch a deal.
Global agrochemicals companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes. Seeds and pesticides markets are also increasingly converging. This has driven Monsanto to consider a tie-up to build strength.
Monsanto approached Bayer in March to express interest in its crop science unit, Reuters reported at the time. Among the possibilities discussed were an outright acquisition of the crop science unit and a joint venture, or other type of partnership between the two companies.
ChemChina plans to buy Switzerland's Syngenta for $43 billion, after Syngenta rejected a bid from Monsanto. Dow Chemical and DuPont are forging a $130 billion business.
With German rival BASF having previously considered a tie-up with Monsanto, Bayer has moved to avoid being left behind.
Bayer's unsolicited bid for Monsanto is the largest all-cash takeover on record, according to Thomson Reuters data, just ahead of InBev's $60.4 billion offer for Anheuser-Busch in June 2008.
Bayer saide earlier this week that it would finance its cash bid with a combination of debt and equity.
According to The Wall Street Journal, the two companies would together account for around 28% of global sales of pesticides and herbicides.
