Here's what WSJ had to say:
American Home Products,
Monsanto Agree to Combine
Stock Swap Valued at $35.08 Billion Is Tied
To Genetics Revolution in Agriculture, Medicine
By ELYSE TANOUYE and JAMES P. MILLER
Staff Reporters of THE WALL STREET JOURNAL
American Home Products Corp. agreed to acquire Monsanto Co. in a $35.08 billion stock swap, driven by a revolution in genetics that is bringing significant medical and agricultural advances.
The proposed deal would create a new, as-yet-unnamed powerhouse in the pharmaceutical, nutrition and agriculture industries. In what the companies called a "merger of equals," American Home shareholders would own about 65% of the new concern. But the two companies agreed that their chairmen would become co-chairmen and co-chief executive officers and that American Home and Monsanto would have equal representation on the new company's board.
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American Home Products' John Stafford and Monsanto's Robert Shapiro discuss their companies' merger.ÿÿ<Picture: Learn About CNBC/Dow Jones Business Video>
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Both companies have well-known consumer products -- American Home makes Advil and Chap Stick, while Monsanto makes Nutrasweet. But both now are racing against competitors to develop and commercialize results of the recent explosion of discoveries in genetics and automated chemistry. The technology breakthroughs are creating vast opportunities for new products, but the costs are devouring research-and-development budgets throughout the drug and agricultural industries. One solution: pooling resources to create huge research houses that have the budgets and expertise to exploit the emerging science.
"People are racing to identify [gene] targets, and in some instances the winners will be the ones who get there first," said John Stafford, chairman, president and chief executive of American Home, Madison, N.J., where the new company will be based. "We think we can run faster together."
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The Making of a Medical Titan
ÿ ÿÿÿÿÿÿÿÿAmerican
ÿÿÿÿHome Products ÿÿÿÿÿMonsanto-a Headquarters ÿÿÿÿÿÿMadison, N.J. ÿÿÿÿÿÿSt. Louis 1997 Revenue ÿÿÿÿÿÿ$14.2 billion ÿÿÿÿ$7.51 billion 1997 Profits ÿÿÿÿÿ$2.2 billion-b ÿÿ$294 million-c Employees ÿÿÿÿÿÿÿÿÿÿÿ59,600 ÿÿÿÿÿÿÿÿ21,900
a-Financial figures exclude contributions from Monsanto's chemical businesses which were spun off in Sept. 1997.
b-Net income
c-Income from continuing operations
Moving Up the Ranks
Listed by percent of global market share of 1998 projected pharmaceutical sales
Merck ÿÿÿÿÿÿÿÿ4.70% Glaxo Wellcome ÿÿÿÿÿÿÿÿ4.19% Novartis ÿÿÿÿÿÿÿÿ3.62% Pfizer ÿÿÿÿÿÿÿÿ3.44% Bristol-Myers Squibb ÿÿÿÿÿÿÿÿ3.38% AHP-Monsanto ÿÿÿÿÿÿÿÿ3.12% SmithKline Beecham ÿÿÿÿÿÿÿÿ2.61%
Sources: the companies; Tradeline; Baseline
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The agreement follows a failed attempt by American Home this year to merge with SmithKline Beecham PLC, one of the first companies to move aggressively to harness gene and chemistry technologies to discover pharmaceuticals. SmithKline dropped the American Home negotiations in favor of a deal with Glaxo Wellcome PLC, but that effort fell apart over management-control issues. Now other companies, including Pfizer Inc., Glaxo and Bristol-Myers Squibb Co., are gaining access to new technologies by acquiring or collaborating with smaller biotechnology companies.
<Picture: [Go]>Merger Is Experiment in Splicing Together Two Chief Executives
<Picture: [Go]>Once a Floundering Business, Searle Is Now Pharmaceutical Plum
<Picture: [Go]>Old Rivals Monsanto and DuPont Fight Over New Turf -- Biotech Crops (May 27)
<Picture: [Go]>The Competition in Crop Biotechnology Intensifies the Players' Need for Cash (May 15)
<Picture: [Go]>Monsanto, Cargill Team Up for Crop-Biotechnology Race (May 15)
<Picture: [Go]>Monsanto CEO Races to Build Crop Biotechnology Power (May 13)
<Picture: [Go]>DuPont Plans to Sell Off Conoco, Clearing Way for Biotech Growth (May 12)
<Picture: [Go]>Monsanto Buys Crop-Biotech Firms In Cash, Stock Deals of $4.2 Billion (May 12)
Terms of the latest combination call for American Home stockholders to get shares in the new company on a 1-for-1 basis. Monsanto holders would receive 1.15 shares of the new company for each current share held.
In New York Stock Exchange composite trading Monday, American Home shares rose 93.75 cents to $49.25. At that price, the exchange ratio for the merger would provide Monsanto holders with stock valued at $56.6375 a share and value the deal at $35.08 billion, based on 619.4 million shares outstanding. It would be the sixth-largest corporate merger in history.
Monsanto shares slipped 87.5 cents in heavy Big Board trading Monday, to close at $54.50, still up more than 40% from the $38.3125 the shares fetched as recently as January, in part due to speculation about a takeover.
Wall Street observers had expected St. Louis-based Monsanto to seek a partnership or alliance, because its corporate pockets aren't deep enough to match the research at larger competitors, such as Novartis AG of Switzerland and DuPont Co., that are also making big biotech bets.
DuPont especially had been rumored to be a potential suitor of the Midwestern company, but people on Wall Street Monday put a low probability on its breaking up the engagement with a higher offer. A DuPont-Monsanto combination might raise antitrust issues, for instance, and some people see a possible culture clash between the conservative management approach at DuPont and the more new-age style at Monsanto. In addition, there is a $700 million payment in the deal for American Home if a third party breaks up the combination.
Robert B. Shapiro, Monsanto's chairman and chief executive, has drawn high marks for successfully redefining the onetime chemical producer as a crop-biotech leader. But the acquisitions that helped reposition Monsanto have been pricey, the company's research outlays are growing more burdensome, and the payoff for a number of promising high-tech agricultural projects lies well in the future.
In addition, U.S. patents on the popular agricultural herbicide Roundup, which has served as Monsanto's cash cow for the past several years, are set to expire in 2000.
This has set the stage for takeover talk, and Mr. Shapiro had done little to damp the conjecture. Indeed, for the past several weeks he has publicly signaled his interest in some sort of alliance with a health-related company, to help Monsanto avoid having its ambitious effort in the increasingly fast-moving agricultural-biotech field crimped for lack of funding.
"We talked to a lot of people," Mr. Shapiro said in a news conference Monday. But Monsanto found American Home "by far the most attractive" partner.
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Monsanto's Transformation
Milestones on the road from chemicals to "life-sciences":
1994
CEO Richard J. Mahoney discloses plans to retire, ending a 12-year tenure in which Monsanto acquired Searle, shed low-margin petrochemical operations and expanded its ag-chem lines. Robert B. Shapiro named to succeed him.
1995
Sells styrenic plastics business for $580 million.
1996
Buys 40% common stake in DeKalb Genetics Corp. for $170 million. Buys plant-biotech assets of W.R. Grace & Co.'s Agracetus unit Buys controlling interest in Calgene Inc.
1997
Buys Holden's Foundation Seeds and Corn States Hybrid Spins off chemicals business
1998
Agrees to pay a combined $4.2 billion to buy remaining 60% of DeKalb Genetics, and Delta & Pine Land Co. Amid speculation company may need deeper pockets, Shapiro says Monsanto lacks critical mass to achieve all his goals for it in the biotech realm. Agrees to combine with American Home Products.
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The merged company "is designed to be successful in the face of continued consolidation and increasing world-wide competition in the life sciences," Mr. Shapiro said. It "will have the scientific depth, global marketing capabilities and financial resources to take greater advantage of the opportunities before us and to bring innovative new products to market faster."
The deal still leaves open the issue of who will lead the new company in the future, because Mr. Stafford is 60 years old and Mr. Shapiro is 59. Last year Mr. Stafford underwent surgery for prostate cancer, and although he says he is healthy and robust, his health problems brought to the forefront the company's lack of an heir apparent. Indeed, American Home's attempt to merge with SmithKline was seen partly as an effort to resolve the management-succession uncertainty.
Monday, Mr. Stafford said the shared leadership arrangement of the new company will be in place at least over the next year or two until the two companies are fully integrated.
The American Home-Monsanto engagement renewed talk that other deals might follow. Speculation has swirled recently that Hoechst AG will become a takeover target of Swiss drug giant Roche Holding Ltd. and Bayer AG. Both companies declined to comment. Hoechst officials, however, played down deal-making rumors.
Combining Monsanto's and American Home's pharmaceuticals business comes as Monsanto is seeking to launch an important new painkiller. Monsanto's Searle unit, while small by industry standards, will soon seek approval to market the promising drug in the so-called COX-2 class, which many industry observers believe will be a blockbuster profit producer. American Home's drug business, dominated by the menopause drug Premarin, is larger, but its growth prospects were hurt by its recall of diet drugs Redux and Pondimin last year, over which it faces several lawsuits.
Searle already has an agreement with Pfizer Inc. to co-market the COX-2 drug, to be named Celebra, and that agreement isn't going to be affected by the merger, the companies said. The drug is expected to compete with a similar product being developed by Merck & Co.
American Home brings to the combination its ability to market drugs world-wide, a capability Searle needed. Combining the companies' pharmaceutical and agriculture research budgets, a huge $3 billion a year, will also allow them to eliminate duplicative costs and focus resources on the best candidates between the two companies. It will also allow them to apply the new gene science to the agricultural field, where genetics is helping scientists create hybrid plants that are more resistant to disease, drought or spoilage.
The combination reflects the growing "convergence of the agriculture, pharmaceutical and nutrition businesses," said Furman Selz LLC analyst Mark Wiltamuth. The heavy cost of that new technology is accelerating the mergers, he said.
As a result of its corporate "re-engineering" and a number of well-conceived pharmaceutical and agricultural-biotech research efforts, Mr. Wiltamuth said, "Monsanto has built the largest new-product opportunity in its history... . With American Home, we think they'll be able to more comfortably finance these projects."
The two companies said they expect that within three years the merger will yield annual cost savings of $1.25 billion to $1.5 billion, including from some layoffs. In a joint release, they said that assuming the merger is completed by year end, dilution associated with the transaction would reduce American Home's per-share earnings by 15% in 1999 and a lesser amount in 2000; the deal would start to add to earnings the following year.
Because Monsanto's shares trade at a richer price/earnings multiple than American Home's, the companies said the transaction is dilutive to American Home's shares on the order of 15% in the first year after closing.
Bear, Stearns & Co. and the law firm Simpson Thacher & Bartlett advised American Home. Monsanto was advised by Goldman, Sachs & Co., received a fairness opinion from Robertson Stephens & Co. and used Wachtell, Lipton, Rosen & Katz as legal advisers.
The Federal Trade Commission, not the Justice Department, probably will review the merger, because the agency has handled most drug mergers in recent years. While antitrust experts Monday said there didn't seem to be insurmountable product overlaps, the FTC in recent years has insisted on preserving competition in products that aren't yet on the market, sometimes forcing divestitures or licensing of research.
--Steven Lipin contributed to this article. |
