[Great article!] 03/03 DuPont/Monsanto could dominate farming for decades
By Jonathan Birt
LONDON, March 3 (Reuters) - A merger between Du Pont Co
<DD.N> and Monsanto Co <MTC.N> could create a company
capable of dominating the world's fast-changing farming industry for
decades to come.
Combining the two businesses -- a project still firmly on the drawing
board according to reports in the New York Times -- would
immediately create the biggest seller of products for agriculture, with
annual sales of more than $6 billion.
It would surge past Europe's Aventis, currently being formed from the
merger of Germany's Hoechst AG <HOEG.F> with France's
Rhone-Poulenc SA <RHON.PA>, on $4.5 billion, and leave
Switzerland's Novartis AG <NOVZn.S> and Britain's Zeneca Group
Plc <ZEN.L> trailing. Despite its scale, analysts beleive a merger
would probably slide past antitrust authorities based on the group's
existing portfolios, which are largely complementary. But they argue
the real significance of the deal could lay a decade or more away,
when the anticipated biotechnology revolution in world farming takes
off.
At stake is the creation of an industry that could dwarf the current
agrochemicals business, which has grown up since 1945 around
chemical treatment of insects and diseases through pesticides and
herbicides, plus provision of fertilizers and nutrients to encourage
growth.
But the unravelling of the genetic make up of plants, in tandem with
that of humans, promises to revolutionise the way crops are raised,
creating superbreeds of plants capable of fighting off diseases and
insects.
On Tuesday, Britain' biggest player in the field, Zeneca, estimated the
global industry could be worth around $700 billion by 2020 compared
with just $33 billion today.
While Zeneca posits a relatively modest share of $75 billion for itself,
the company's own figures estimate the agricultural biotech market
will be dominated by Du Pont with sales of $500 billion a year by
2020, followed by Monsanto on $100 billion. The prize for the two
U.S. groups and their main European rivals, which also include the
Germans BASF AG <BASF.F> and Bayer AG <BAYG.F>, is using
genetic understanding of plants to create in-built resistance to
disease, insects and chemicals used to destroy unwanted vegetation.
Eventually farmers will use genetically-altered crops to boost yield
and improve plant quality -- the area with the largest sales potential.
"It is a period of tremendous exctiement. I have seen more change in
this industry in the last two or three years than since its inception in
the post-war years," Zeneca Agrochemicals research and
development director Dr David Evans told a meeting of analysts on
Tuesday.
Monsanto has led the way in the coming revolution, creating a brand
of soya which is resistant to its own herbicide Roundup, and working
on corn which is genetically-engineered to resist insects and tolerate
herbicides.
Companies on both sides of the Atlantic have started to pour ever
greater sums into biotech research. Monsanto spent $4 billion buying
three seeds genomics companies in 1997, while Du Pont shelled out
$1.7 billion buying a 20 percent stake in another major seed
company, Pioneer Hi-Bred International. "You have to position now in
order to get research and development in on the new genes, to get
them into seeds and on to the market," HSBC agropharma analyst
Brian Wilkinson said.
"That is an eight to ten year process. To be ready for this market
when it takes off in 2010/2015 you have got to make these
investments now."
Novartis, which some believe has been in danger of slipping behind
in the biotech race, last year announced it was spending $600 million
to build an agricultural research center in San Diego, and Zeneca
said this week its biotech spending would treble this year to $60
million from $20 million in 1997.
"Thanks to the formation of Aventis, the European position in
agrobiotech is very sound. Novartis is still a player to be reckoned
with," Wilkinson said, adding that Zeneca was also positioning itself
"astutely" in the fledgling sector.
However, putting together Du Pont's financial muscle with the
technology base Monsanto has spent several years and billions of
dollars creating will raise the stakes for European players who have
led the industry to date.
"There is an industrial logic to this," Paribas analyst Philip Morrish
said. "Du Pont has a lot of money and it would take them further in the
direction they want to go.
But HSBC's Wilkinson added: "This would be a very significant
challenge to life science companies in Europe." |
