Monsanto, American Home Cancel $35 Billion Merger (Update4)
Bloomberg News
October 13, 1998, 12:19 p.m. ET
Monsanto, American Home Cancel $35 Billion Merger (Update4)
(Adds stock prices in 6th paragraph, analyst comment about
effect on SmithKline Beecham.)
St. Louis, Oct. 13 (Bloomberg) -- Monsanto Co. and American
Home Products Corp. canceled a $35 billion merger as concerns
about management got in the way of a combination that could have
helped both companies, analysts said.
Shares of both companies tumbled, with Monsanto, one of the
world's biggest agricultural biotechnology companies, falling 12
5/8 to 39 3/4. The collapse of the merger means Monsanto may look
elsewhere for marketing expertise to help distribute new drugs it
has in development.
Monsanto next year could begin sales of an arthritis pill
expected to be the industry's next blockbuster and would have
gained expertise in drug sales from American Home, the world's
seventh largest drugmaker.
''The two companies needed each other,'' said James Keeney,
an analyst with ABN Amro, who had raised his rating on American
Home to ''buy'' after the merger was announced in June.
American Home, which would have gained access to new drugs
and genetic technology from the merger, fell 4 to 46. The company
has been seeking a merger partner for more than a year and
The two companies issued a release saying ''the transaction
is not in the best interest of their respective share owners.''
''Based on the stock's prices, that's probably not true,''
said Hemant Shah, an independent analyst who has a ''neutral''
rating.
Power Sharing
More likely, analysts said, the merger fell apart because of
differences over who would run the combined company.
Monsanto, best known for its Roundup herbicide and
genetically altered seeds, may have tried to gain control of too
much of the combined company instead of just the agricultural
side, which it was expected to lead, Keeney said.
''These issues have been going on for several weeks now,''
said Shah. ''The first and most important (are) management, and
power sharing.''
The merger agreement began with the smaller Monsanto being
allotted an equal number of seats on the board once the
acquisition was complete, an unusual arrangement, he said.
''We know that American Home was bending over backward to
please Monsanto and get the job done,'' Shah said, citing
industry sources. ''Maybe Monsanto kept asking, and maybe
American Home decided enough was enough.''
American Home has had a number of setbacks recently. It
withdrew two popular diet drugs, Redux and Pondimin amid concern
about heart-valve problems. It now faces more than lawsuits from
people who took the drugs. In June, American Home's painkiller
was withdrawn amid concerns about side effects. At the same time,
rival drugmakers have been bringing successful new products to
market, such as Pfizer Inc.'s impotence pill Viagra.
Talks With SmithKline
American Home, maker of Advil painkiller and Premarin
hormone therapy, also makes herbicides. The company's merger
talks with U.K.-based SmithKline Beecham Plc ended without an
agreement in January. SmithKline then unsuccessfully held talks
with Glaxo Wellcome Plc.
SmithKline shares jumped after the merger was called off on
what analysts said was speculation that American Home may reopen
talks with SmithKline. Shares were trading up 34 pence at 650p in
recent London trading, more than 5 percent.
Lionell Wilson, analyst with Townsley & Co., a London
brokerage, said SmithKline would not revive talks with American
Home. SmithKline, he said, ended talks not only over management
differences, but also because of American Home's pending
litigation over the withdrawal of the popular diet pill Redux.
''The market is reacting incorrectly on SmithKline,'' said
Wilson. ''SmithKline told shareholders it would not be getting
back into bed with American Home and shareholders would not
accept it if they did.
No Break-Up Fee
Because the agreement was mutual, neither American Home nor
Monsanto will have to pay the other the $700 million break-up fee
the two companies had agreed to, said Lowell Weiner, an American
Home spokesman.
The top executives of American Home and Monsanto had
intended to share management of the new company. Monsanto's
Robert Shapiro, and American Home's John Stafford intended to
serve as co-chairmen and co-chief executive.
Stafford and Shapiro, both 60, are known as strong leaders
who have built their companies through acquisitions.
Monsanto may have been trying to gain control of the
pharmaceutical research and finances as well as the agricultural
business, leaving American Home with only the over-the-counter
products, Keeney said.
Helps Pfizer, Merck
The end of the merger helps Pfizer Inc. and Merck & Co.,
Keeney said.
Goldman, Sachs & Co. advised Monsanto, and Bear Stearns &
Co. advised American Home.
Monsanto earlier this year entered an agreement with rival
drugmaker Pfizer Inc., the maker of the impotence pill Viagra, to
help market its new arthritis painkiller. Monsanto is expected to
file this year with U.S. regulators for approval of the drug,
potentially its biggest seller.
--Dylan Ratigan in New York and Kerry Dooley in Princeton (212) |
