Source: Industry News, ISB Newsletter, June, 1998
It seems to get harder and harder to write about the business side of agricultural biotechnology without discussing Monsanto in one way or another. This month is no exception. In fact, in a flurry of recent activity, Monsanto has further strengthened its position in the crop biotechnology arena. There is also some talk that the hunter might also be the hunted, as recent divestitures on the part of chemical giant DuPont have led to speculation that Monsanto might become an acquisition target of the Wilmington, Delaware (USA)-based company.
In mid-May, Monsanto announced that it had reached agreements with DEKALB Genetics and Delta & Pine Land Company to acquire the two companies (1). DEKALB is a global leader in agricultural genetics and a top hybrid seed corn company, while Delta & Pine is a major breeder, producer, and marketer of cotton seed. These acquisitions by Monsanto allow the company to “provide both technology and global reach by creating broader seed platforms that enable [Monsanto] to better connectto the needs of growers and processors, and allow [Monsanto] to more quickly anticipate new markets or marketplace trends.”
Monsanto agreed to ante up a total of $4.2 billion in cash and stock for the two seed companies, paying over $100 per share for DEKALB ($2.3 billion) for the 60% of the company it did not already own, and about $1.9 billion for Delta & Pine (2). The price that Monsanto agreed to pay for DEKALB is nearly three times the price that the shares traded for in February prior to the Roberts’ Family (founders and holders of a controlling stake) decision to put its shares up for sale. The premiums reflect Monsanto’s desire to continue building its crop biotechnology and life sciences business.
There was some concern raised in a recent Wall Street Journal article about Monsanto’s debt level given the magnitude of its acquisition activities in the past few years (2). In the same article, Monsanto CEO Robert Shapiro was quick to note that this would not be a problem as Monsanto operates with significant cash flow and is capable of paying down debt very quickly. There was also concern as to the ability of Monsanto to carry out, on its own, its aggressive agbiotech vision. This has led some to speculate that Monsanto will ultimately seek to align itself with a larger partner to create the necessary critical mass to be a major player in the biotechnology-driven agricultural world of tomorrow.
One such possible partner, DuPont Co., recently shed its Conoco oil unit, generating an estimated $25 billion which the company has stated it will likely use to invest in its life sciences business (3). The sale of the Conoco unit is thought by some to precede a major acquisition in the life sciences area by DuPont. Monsanto has been mentioned as one possible target, along with Zeneca and Pioneer Hi-Bred (of which DuPont already owns 20%). DuPont’s expectations for life sciences and biotechnology are not paltry. The company anticipates that as much as a third of earnings will come from this area in another five years, compared with only about 18% now. DuPont has been working in recent years to establish its life sciences presence, having last year spent $1.7 billion for its 20% stake in Pioneer Hi-Bred.
Given the feverish pace at which acquisitions have been taking place in the last couple years, it is not unreasonable to expect some kind of action on the part of DuPont in the near future. What exactly that will be is yet to be determined, and the rumors are flying. At the end of May, there was a report that DuPont might purchase healthcare biotechnology giant Amgen (4). Although neither company discussed the proposition publicly, there were mixed sentiments among Wall Street analysts as the validity of the rumors. As always, stay tuned
Monsanto Acquires Two Seed Companies To Broaden Availability Of Agricultural Biotechnology. Press Release (www.monsanto.com), May 1998.
Kilman, S. Monsanto Buys Two Companies for $4.2 Billion. The Wall Street Journal, May 12, 1998.
Warren, S. DuPont Plans to Shed Conoco Oil Unit. The Wall Street Journal, May 12, 1998.
Seachrist, L. Amgen Stock Jumps On Rumor DuPont May Buy Out Company. BioWorld Today, Vol. 9, No. 99, May 26, 1998.