From WSJ:
November 9, 1999
---------------------------------------------------------------------
Monsanto Considers Full or Partial Sale;
Novartis Is a Suitor, Pact Isn't Imminent
By NIKHIL DEOGUN and THOMAS M. BURTON
Staff Reporters of THE WALL STREET JOURNAL
Under pressure to boost its stock price, Monsanto Co. has been holding talks about a sale of all or part of the company, and Swiss pharmaceuticals giant Novartis AG has emerged as a serious suitor, people familiar with the talks said.
Dearth of New Drugs in Pipeline Is Fueling Wave of Merger Bids (Nov. 8)
In Biggest Hostile Bid, Pfizer Offers $80 Billion for Warner-Lambert (Nov. 5)
Monsanto Faces Pressure to Break Up the Company (Oct. 21)
Novartis Plans to Slash 1,100 Jobs (June 23)
No agreement is imminent, and there remain significant hurdles to a deal, ranging from financing issues to potential antitrust problems in the companies' agricultural businesses to a recent spike in Monsanto's depressed stock price. Most important, the talks come at a time when major global agricultural and pharmaceutical companies have been holding discussions about merging their businesses, meaning the industry landscape seems to be changing every day. Likewise, Monsanto may decide it can create more value by splitting up the company.
The talks between Monsanto and Novartis have been complicated by Pfizer Inc.'s $74.6 billion hostile bid for Warner-Lambert Co., which had agreed to a $69 billion friendly merger with American Home Products Corp.
Monsanto has been quietly talking to industry rivals about a possible combination. It has held discussions with Schering-Plough Corp., DuPont Co. and Pfizer, which was extremely interested in acquiring Monsanto's drug business, according to people with knowledge of the discussions. A year ago, Monsanto and AHP ended a $35 billion merger pact, and earlier this year Monsanto held unsuccessful merger discussions with DuPont.
'A Giant Chessboard'
"It's a giant chessboard with moving pieces," said a person close to the talks.
Discussions between rival drug makers are taking place at the highest levels of the companies, and other companies may have a renewed interest in Monsanto. In addition, Novartis had approached AHP before AHP forged a merger pact with Warner-Lambert.
Monsanto shareholders and analysts have been lobbying Robert Shapiro, Monsanto's chief executive, to break up the St. Louis crop-biotechnology and pharmaceutical company, arguing that the assets would be worth more individually. In particular, shareholders have advocated a spinoff of Monsanto's G.D. Searle unit, maker of the hot-selling Celebrex arthritis drug, or a spinoff of the agribusiness itself.
Several analysts believe the Searle unit as a stand-alone business could fetch a market capitalization greater than the current value of all of Monsanto. Furthermore, Searle would, in such an event, become a takeover target rather quickly, though tax and accounting issues could hinder a tax-efficient purchase of the division.
None of the companies would comment. Reached Monday night, Daniel Vasella, Novartis's chief executive, declined to comment. In New York Stock Exchange trading at 4 p.m., shares of Monsanto closed at $43.625 a share, down $1.5625.
Whatever the outcome, it appears that Monsanto is certainly looking for a transforming transaction, and its management would rather do a full-scale merger than break up the company, a person close to the company said. Novartis is one of the few participants interested in both parts of Monsanto, pharmaceuticals and agriculture, primarily because Novartis itself is active in both segments.
Agricultural Downturn
Both companies' chief executives have been big believers in using the same research to create everything from new drugs to new crops. However, the crop-biotechnology business at both companies has been hurt by a severe downturn in agriculture in the U.S. and Europe, plus a backlash against genetically modified crops.
Indeed, one option that has been discussed is to combine both companies' agrochemical businesses and either spin off that entity or issue a tracking stock. The latter scenario would allow pharmaceutical fans to invest in one stock, leaving the agricultural business -- which is riskier but could pay off in the long term -- to attract its own investors.
Some people close to Monsanto say a spinoff or partial sale is still possible. Searle is viewed as a prime, albeit second-tier, pharmaceutical property, because of a successful research effort out of proportion to the company's modest size. In particular, the immense success of Celebrex, which Monsanto co-markets with Pfizer, and the promise of Searle's COX-2 drug programs in both arthritis and various cancers, make Searle attractive to many drug concerns.
Whether there is a sale of all or part of Monsanto soon could depend on whether the company gets what it views as a "premium bid," according to one person familiar with the company.
Sharp Stock Rise
Unfortunately for a buyer, Monsanto's stock has risen about 15% in the past week amid the pharmaceutical merger mania, lifting its market capitalization to $28.3 billion from $24.7 billion; that could take the edge off the financial attraction.
Novartis, formed three years ago by the merger of Sandoz AG and Ciba-Geigy AG, would have a hard time arranging a stock deal, and that could create another stumbling block. The Swiss company doesn't have a direct U.S. stock listing, and its American depositary shares are thinly traded; U.S. investors may not be keen on accepting ADRs or foreign stock. Novartis, which is a much bigger company, could probably finance a cash offer, but it wouldn't be easy considering the lofty sums involved.
Novartis has had a longstanding interest in Monsanto and had hoped Monsanto's stock would become sufficiently depressed to allow for a possible takeover. Also, Monsanto had beaten out Novartis in acquiring seed-corn companies, so Novartis may be interested in removing a competitor.
However, more recently, industry officials have said they expect Novartis to spin off or sell its own agricultural business, which would appear to make a combination with all of Monsanto less likely. Even so, J.P. Morgan analyst Donald D. Carson on Friday wrote that "while we still view a split-up of Searle from Monsanto's ag-products business as the most likely scenario, we believe that a premium priced take-out of the company by the likes of Bayer or Novartis remains a possibility."
Novartis overhauled its agrochemical business earlier this year, eliminating 1,100 jobs in a move that is expected to yield annual cost savings of $65 million. At the time, The Wall Street Journal reported that Novartis may merge its agrochemical business with that of another company and then spin it off. The company was also considering a swap of its agrochemical business for another company's drug operations. A person familiar with the situation said Novartis isn't satisfied with its drug pipeline and is interested in acquiring promising pharmaceuticals.
A major hurdle to a Novartis-Monsanto deal could be antitrust concerns over combining the agrochemical businesses. There could be considerable political furor about a merger of two major makers of genetically engineered products.
--Stephen D. Moore and Anita Raghavan contributed to this article.
|
