American Home, Monsanto to Merge in $34.4 Bln Swap (Update4)
Bloomberg News
June 1, 1998, 8:08 a.m. PT
American Home, Monsanto to Merge in $34.4 Bln Swap (Update4)
(Adds comments from Monsanto CEO, background; updates share
prices.)
Madison, New Jersey, June 1 (Bloomberg) -- American Home
Products Corp. and Monsanto Co. said they will merge in a $34.4
billion stock swap, as the two mid-sized makers of drugs, seeds
and herbicides could no longer face bigger rivals alone.
American Home, maker of Advil painkiller and Premarin
hormone therapy, will swap 1.15 of its shares for each Monsanto
share, valuing Monsanto at $55.56 a share on Friday's closing
price. The new company, still to be named, will have annual sales
of $23 billion and will be 65 percent-owned by American Home
shareholders.
The merger gives American Home a strong partner after the
drugmaker had to withdraw its obesity drugs from the market in
September over health concerns and merger talks with SmithKline
Beecham Plc collapsed earlier this year. Monsanto spun off its
chemicals last year to focus on drugs and its rapidly growing
agricultural-products business.
''American Home did not have critical mass and needed to do
something, which is why they held talks with SmithKline,'' said
Vikram Sahu, pharmaceuticals analyst with Credit Suisse First
Boston. ''What this now gives them is access to Monsanto's
enormous investment in genetic engineering and life sciences in
the last decade.''
American Home shares rose 1 5/8 to 49 15/16 in midmorning
trading, while Monsanto rose 1 3/8 to 56 3/4.
Monsanto stole a march on rivals DuPont Co. and Novartis AG
last month when it said it will acquire seed companies DeKalb
Genetics Corp. and Delta & Pine Land Co. for $4.1 billion. The
companies are scrambling to become leaders in agricultural
biotechnology.
The new merger adds Monsanto's arthritis drugs, including at
least one potential blockbuster, to American Home's portfolio.
''Monsanto has a great (drug) pipeline but they haven't been
big enough to exploit it,'' said Bob Goodof, an analyst for
Loomis, Sayles & Co., which owns about 2 million Monsanto shares.
''They need the scale.''
Savings
Adding St. Louis-based Monsanto to American Home could
decrease American Home's earnings by up to 15 percent in the
first year after the transaction is completed, the companies
said. It will decrease them by a lesser amount in 2000 and then
add to earnings, they said. They expect annual savings of as much
as $1.5 billion within three years of the closing.
The transaction is expected to be completed by the end of
the year. The board will be evenly divided and the chairmen and
chief executives, American Home's John Stafford, 60, and
Monsanto's Robert B. Shapiro, 59, will share those posts.
Monsanto's biggest potential drug is a new kind of
painkiller that works without irritating the stomach.
Monsanto earlier this year entered an agreement with rival
drugmaker Pfizer Inc., the maker of the impotence pill Viagra, to
sell the new painkiller. Monsanto is expected to file this year
with U.S. regulators for approval of the drug.
A merger by Monsanto was no surprise. While Monsanto's
Searle drug unit has a strong pipeline of new products, it's too
small to steer them through the regulatory process or provide the
needed marketing and distribution, analysts said.
Merger Partners
DuPont Co., Zeneca Plc, or Pfizer Inc. were among those
touted as possible merger partners for Monsanto. Most analysts
had expected Monsanto shareholders to get a substantial premium.
The company had persuaded investors over the past year to accept
slower earnings growth as it spent heavily to acquire the assets
it needed to dominate the market for genetically altered crops.
''The question is whether Monsanto became concerned that its
strategic decisions to acquire key assets would create greater
earnings dilution in the medium term than investors would
accept,'' said Sano Shimoda, president of BioScience Securities
Inc. ''The question is also whether this announcement has put
Monsanto in play.''
Monsanto's Shapiro said shareholders may have gotten more if
he had put the company up for sale. This agreement, however, in
which Shapiro becomes co-chief executive of a company three times
larger, gives Monsanto far more control than it would have had
under a straight acquisition, benefiting shareholders over the
long term, he said.
''This is not a buyout situation,'' Shapiro said. ''We had
no need to be bought and we didn't want to sell. We wanted to
align ourselves with a set of capabilities that will create a
great life sciences company.''
American Home has been expected to merge with or acquire
another drug company, said Cynthia Beach, analyst with Gerard
Klauer Mattison & Co.
''It's been their business strategy to grow through
acquisitions,'' Beach said.
Cyanamid
Buying Monsanto also complements the business of American
Home's Cyanamid unit, acquired in 1994. Cyanamid makes herbicides
and other crop-protection chemicals. ''It's not as good as
Monsanto's business,'' Beach said.
American Home and Monsanto also both are working on
arthritis drugs. American Home owns 54 percent of Immunex Corp.,
which is developing a drug, Enbrel, for rheumatoid arthritis. In
addition, American Home already sells several the anti-
inflammation drug Lodine.
Monsanto is expected to be the first to file for U.S. Food
and Drug Administration approval of a new kind of painkiller,
known as a Cox-2 inhibitor. Merck & Co. also is working on one of
these drugs, which works without irritating the stomach, as do
many existing painkillers.
American Home expects to continue Monsanto's partnership
with Pfizer for marketing the new painkiller, said Lowell Weiner,
an American Home spokesman.
American Home faces about 800 lawsuits because of its role
as maker of the diet drug Pondimin and distributor of another
diet drug, Redux, according to a March regulatory filings.
American Home and Interneuron Pharmaceuticals Inc. halted
sales of the drugs Sept. 15 because they had been linked to
serious heart-valve problems.
Doctors' studies have suggest one out of every three users
of fen-phen, a combination of fenfluramine and phentermine, may
wind up with heart-valve problems. That prompted American Home,
fenfluramine's maker, to yank its versions of the drug off the
market in September. SmithKline is one of the companies that
makes phentermine, which is still on the market.
Madison, New Jersey-based American Home also withdrew Redux,
another popular weight-loss drug, last year. The drug has been
linked to primary pulmonary hypertension, a rare and sometimes
fatal lung condition.
Plaintiffs' lawyers say the fen-phen litigation may wind up
as one of the largest mass tort cases in U.S. history and
potentially expose American Home and other drugmakers to damages
topping the $4 billion expected to be paid out for silicone
breast implants. |
