Monsanto to sell GM business
20 December 1999
Monsanto to sell GM business
By FWi staff
PART of life science giant Monsantos agriculture business is to be sold off in a multi-billion dollar merger with pharmaceutical company Pharmacia & Upjohn Inc.
Up to 20% of Monsantos agricultural unit, which includes genetically modified seeds and Roundup pesticide among its products, will be sold once the companies merge.
The companies agreed to merge in a $26.6 billion (£16.5bn) stock transaction described as a “merger of equals without a premium”.
The Monsanto share price has fallen by 12% this year, despite the success of its pharmaceutical unit.
The agriculture unit has been blamed for dragging down the share price, with GM technology meeting strong resistance in Europe, Japan, and increasingly in the USA.
The company is currently fighting a multi-billion dollar lawsuit in America from an umbrella of environmental and farmers groups.
They claim GM technology had not been properly tested before being used commercially.
A worldwide slump in demand for agrochemicals, caused by over-capacity and sluggish growth in the $30bn market, has added to the agriculture units troubles.
Bloomsberg reports that the agricultural unit will set up its own board and management in St Louis after the parent companies merge.
Analysts predict the merger may force European agrochemicals makers to seek partners.
“This puts more pressure on BASF and Bayer – as the industry consolidates around them, they are the ones left looking for partners, Peter Blair of Salomon Smith Barney told Bloomsberg.
Pharmacia chief executive Fred Hassan will be CEO of the combined company, with corporate and pharmaceutical headquarters in Peapack, New Jersey.
Robert Shapiro, Monsantos chairman and chief executive, will be non-executive chairman of the new company three years, after which he will be succeeded by
Mr Hassan.
The companies said they expect to cut $600m in costs by the third year after the deal.
Some investors, concerned at the performance of the agricultural unit, had been urging Mr Shapiro to sell or break up the company.
Monsanto has held merger talks with American Home, Novartis AG and DuPont Co, and was considering all options to boost its share price.
Pressure intensified after rivals Novartis and AstraZeneca announced plans to spin off and merge their argibusiness operations.
This cast doubt on Monsantos life science concept, and took two potential merger candidates out of the running.
Monsantos agribusiness sales totalled $4bn in the first nine months, while its drug unit G D Searle generated revenue of $2.7bn.
Although smaller, Searle powered profit growth for the company.
Monsanto shareholders will exchange each share for one in the new – and as yet un-named – company. Pharmacia holders will get 1.19 for each of theirs.
The merger must be approved by shareholders and regulators. It is expected to close in the second half of 2000.