12:16 T =Analysts Say DuPont, Monsanto Merger Unlikely
13:38 T =DuPont/Monsanto -2: Seed Businesses Might Cause Problems
By Desiree J. Hanford and Gaston F. Ceron
ST. LOUIS (Dow Jones)--A possible marriage between life sciences companies
DuPont Co. (DD) and Monsanto Co. (MTC) has received a lukewarm initial reaction
from Wall Street analysts.
While they found the idea intriguing, analysts said they don't see the deal
as likely to take place for a number of reasons, including possible dilution to
DuPont, different corporate cultures and probable antitrust concerns.
"It would make sense strategically, but I think the odds of this happening
are smaller than they are larger," said Parker/Hunter Inc. analyst Richard
Sporrer.
Speculation was sparked by a New York Times article Wednesday that cited
unnamed executives who said Monsanto is in talks to be acquired by DuPont.
Both companies declined to comment on the possibility of a merger.
Although Monsanto just recently called off a merger with American Home
Products Corp. (AHP), analysts said the company is still looking for a deal.
The company has been on an acquisition spree as it bulks up its agricultural
biotechnology business, and this has left Monsanto saddled with a heavy debt
load.
Edward Jones & Co. analyst William Fiala said Monsanto's balance sheet has
more than 60% debt, compared with an industry average that is closer to 30%.
Meanwhile, DuPont has a strong balance sheet, has raised a lot of money in the
divestiture of its oil business, Conoco Inc. (COC), and is cash rich.
"That's the main reason Monsanto would be interested in merging with DuPont,"
Fiala said.
But Fiala and others aren't holding their breath waiting for a merger to
happen. For one thing, the deal might be very dilutive to DuPont and that would
make shareholders unhappy, said BT Alex. Brown Inc. analyst Sergey Vasnetsov.
"Financially, it would be very negative," he said.
Based in Wilmington, Del., DuPont is a chemical company that has been
emphasizing its agricultural biotechnology business lately. Monsanto, based
here, has made life sciences its focus since spinning off its chemical
business, Solutia Inc. (SOI), in 1997.
Monsanto's stock has received a boost from the takeover talk, and was
recently trading at 47 7/8, up 3 1/2, or 7.9%. But Sporrer said if Wall Street
was truly betting on a deal, the stock would have advanced further. Initially,
the American Home Products deal valued Monsanto at $56.6375 a share.
DuPont, meanwhile, was up 1/2, or 1%, at 51 13/16.
Analysts warned a Monsanto-DuPont marriage would probably raise some eyebrows
among antitrust regulators as the two companies would control a significant
portion of the North American seed business. Monsanto already owns one leading
seed maker, DeKalb Genetics Corp., and has agreed to buy another, Delta & Pine
Land Co. (DLP). DuPont owns a 20% stake in Pioneer Hi-Bred International Inc.
(PHB).
Monsanto can live without additional antitrust scrutiny, as the Delta & Pine
Land deal has already attracted plenty of attention. If DuPont and Monsanto
find they can't keep all three companies, they might just decide to sell the
Pioneer portion.
"My sense is that the Pioneer stake is being quietly shopped," said Robert
Goodof, a buy-side analyst at Loomis Sayles & Co. in Boston.
A DuPont spokeswoman wasn't immediately available for comment on a possible
sale of the Pioneer stake. A Pioneer spokesman declined to comment on a sale,
but noted his company and DuPont have "a strong, good relationship" that
includes a research alliance and a joint venture, Optimum Quality Grains.
Different corporate cultures could also put a snag in any acquisition, just
as it probably did in the failed Monsanto-American Home Products merger.
Monsanto's laid-back culture is set by Chairman and Chief Executive Robert
Shapiro, who shuns ties and pin-striped suits for sweaters and loafers, but is
regarded as a strong leader who may not want to give up much power.
At the more traditional DuPont, Chairman and Chief Executive Charles Holliday
has been on the job for only about a year. He has already overseen many
changes, however, including a clearer focus on the company's life-sciences
business, the Conoco spin-off and the buyout of Merck & Co.'s (MRK) stake in
DuPont's pharmaceutical business.
"DuPont has grown to become successful in its own right with a strong
corporate culture and the same for Monsanto," said BT Alex. Brown's Vasnetsov.
One possible arrangement, said Goodof, would be to keep Shapiro as the
combined company's chairman and Holliday as its chief executive. This might
suit their personalities better, since Shapiro is regarded as a more of a
visionary and the younger Holliday has the image of a dynamic executive.
Goodof noted that the two chief executives might have good reason to put
their egos aside when looking for a deal since both "have been tainted"
somewhat in the past year - Shapiro by the failure of the merger with American
Home Products and Holliday by DuPont's weaker than expected earnings in 1998.
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