American Home Products Won't Go After Monsanto
Saturday, November 21, 1998
Section: BUSINESS
By Robert Steyer Of The Post-Dispatch
Forget the notion that American Home Products Corp. will make a hostile
takeover attempt for Monsanto Co., at least in this century.
Despite a recent report by Forbes Magazine that American Home is planning
an attack following the bitter break-up of a merger plan last month, sources
familiar with the companies say it couldn't happen for at least two years.
That's because the companies negotiated a "standstill" agreement, in which
American Home said it wouldn't make a run at Monsanto for two years,
sources say.
Spokeswomen for both companies declined to comment.
The companies announced a merger June 1. But on Oct. 13 they said they
spiked the deal "by mutual consent" because the merger was "not in the best
intrerest of their respective shareowners."
The transaction had been touted as a merger of equals even though American
Home has nearly twice the revenue and more than than double the employees
of Monsanto. The merger would have allowed the chief executives of both
companies to become co-chiefs of the new company; and it would have given
both companies equal representation on the board of directors of the new
corporation.
After the deal fell through, Monsanto announced an independence plan that
includes issuing $1 billion in stock, $2.5 billion in debt and $500 million in a
hybrid security similar to a convertible bond. Precise terms of these securities
have not been revealed.
Monsanto also plans to divest businesses to raise at least $1 billion. The
businesses employ 1,300
to 1,500 people. Monsanto also plans to cut 700-1,000 jobs.
Even if American Home made a hostile bid, it would have to overcome a
"shareholder rights" provision enacted by Monsanto 12 years ago to fend off
unwanted suitors. Many companies have these "poison pill" defenses to
thwart hostile takeovers.
The strategy usually involves giving shareholders of the target company the
right to buy more company stock at sharply reduced prices, thus diluting the
holdings of corporate raiders.
Periodically updated over the years, Monsanto's poison pill is triggered when
a hostile investor buys 20 percent of the company's common stock or
launches a tender offer for 20 percent.
Monsanto's defense gives shareholders a dividend of one "preferred stock
purchase right" for each share of common stock. For each 10 rights, the
holder can buy 1/100th share of a new series of preferred stock for $450.
If Monsanto is acquired while the rights are outstanding, the holder can pay
$450 for common shares of the acquiring company having a market value of
$900. That holds true for a hostile bid or tender offer for 20 percent or more
of Monsanto's stock.
If some investor grabs 20 percent of Monsanto's stock, Monsanto's directors
can exchange the preferred stock purchase rights for Monsanto common
stock at a ratio of 10 rights for each common share. The rights expire in
2000; Monsanto can renew them.
American Home could sue Monsanto to overturn the poison pill, a lengthy
and costly exercise. And if Monsanto felt threatened by American Home, it
could seek out a buyer willing to make a better, friendlier offer.
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