Monsanto Shares Rise on Report of DuPont Merger Talks (Update5)
Bloomberg News
March 3, 1999, 10:44 a.m. ET
Monsanto Shares Rise on Report of DuPont Merger Talks (Update5)
(Adds U.S. stock prices, analyst comment.)
St. Louis, March 3 (Bloomberg) -- Monsanto Co. shares rose
as much as 9.3 percent after the New York Times reported the
company is in talks to merge with DuPont Co., the biggest U.S.
chemicals company.
Such a transaction could be worth at least $28 billion that
would create a global leader in life sciences. The shares of St.
Louis-based Monsanto, the world's No. 2 maker of crop-protection
chemicals, rose 2 1/8 to 46 1/2 in midmorning trading. They
earlier touched 48 1/2. DuPont rose 9/16 to 51 7/8. Both
companies declined to comment.
Monsanto, which has spent about $8 billion in recent years
buying seed companies, last year tried and failed to complete a
merger with American Home Products Corp. Joining DuPont and
Monsanto would create a company with sales of $33.4 billion,
combining DuPont products such as Lycra textile and the AIDS drug
Sustiva with Monsanto's fast-growing Celebrex arthritis drug.
''There are lot of reason to suggest it won't happen
immediately, but it could happen in the future,'' said Jim
Kelleher, an analyst with Argus Research.
Such an acquisition could be expensive for DuPont. With the
introduction this year of a potential blockbuster painkiller
Celebrex, Monsanto shares trade for about 59 times the projected
1999 profit of 80 cents a share, the average estimate of analysts
polled by First Call Corp.
DuPont shares by contrast trade for about 19 times the
estimated 1999 per-share profit of $2.69, partly because of
falling demand for chemicals in Asia. If DuPont were to use stock
to purchase Monsanto, it could reduce per-share earnings.
'Dilutive for DuPont'
''It would be hugely dilutive for DuPont, so I don't think
their shareholders would be jumping up and down over a merger,''
said Sergey Vasnetsov, an analyst at BT Alex. Brown Inc.
That's what happened to Monsanto after it diluted its stock
by adding seed companies.
As a result, its per-share profit has declined each year
since 1996. Only the success of Celebrex is expected to change
that, perhaps making 2000 the first year when Monsanto's per-
share earnings will rise from the year earlier, according to
analysts estimates.
In November, Monsanto said it would cut as many as 1,000
jobs and raise $5 billion to help it survive following the
collapse of its proposed merger with American Home Products Corp.
Monsanto also last year took out a $2 billion revolving credit
loan after the end of the merger plan.
Culture Clash
Disagreements between the two companies' chief executives
killed the merger, analysts have said. Monsanto Chief Executive
Robert Shapiro is known for having created a casual atmosphere at
the company. American Home's chief executive, John Stafford, is
said to lead much more formal operations and is known for keeping
tighter control on spending.
DuPont is led by Charles ''Chad'' Holliday, a former
industrial engineer who has been with DuPont for more than 27
years. Holliday became chief executive in February last year and
in April announced a plan that would put life sciences as the
''centerpiece'' of DuPont's future earnings growth.
In the past five years, DuPont shares have risen about
18 percent a year. Monsanto's stock rose about 27 percent a year
in the same period as it shed its chemical business and focused
on life sciences, agriculture and medicine.
Another possibility could be for DuPont to merge only its
agricultural business with Monsanto, said Jim Wilbur, an analyst
with Salomon Smith Barney.
DuPont has been losing market share to Monsanto Co.'s
Roundup herbicide, which can be sprayed over a growing crop if
farmers use genetically altered Roundup-Ready seeds. Competition
from Roundup helped cause a 29 percent decline in DuPont's fourth-
quarter earnings from agricultural products.
Agricultural Powerhouse
''It still doesn't solve the pharmaceutical problems for
either company, but it would create an agricultural powerhouse,''
said Salomon's Wilbur.
DuPont needs to expand its pharmaceutical business, whose
most recent new drug, the AIDS pill Sustiva, came through an
agreement with Merck & Co.
Monsanto too could use some good late-stage drug candidates.
Celebrex is the first drug to come from the research of
Monsanto's drugmaking unit Searle since Monsanto bought Searle in
1985. So far this year, Searle has disclosed the failure of four
experimental drugs, including three in advanced testing.
DuPont, which is larger than Monsanto, would probably buy
the smaller company in a share offer worth at least $28 billion,
the market value of Monsanto at yesterday's close of 44 3/8, said
Morrish. Monsanto is surpassed by only Novartis of Switzerland in
the market for crop-protection products.
DuPont would have to sell it 20 percent stake in pioneer Hi-
Bred International Inc., a Des Moines, Iowa-based seed company,
Wilbur said.
Since the beginning of last week Pioneer shares have about
fallen 15 percent, which Wilbur said could suggest investors
believe DuPont will sell its stake.
DuPont raised $4.4 billion in October when it sold 30
percent of its Conoco Inc. energy unit in the largest-ever U.S.
initial stock sale.
DuPont intends to shed the rest of its Conoco stake this
year by offering DuPont shareholders the right to swap their
shares for the Conoco shares on a tax-free basis, subject to a
favorable ruling from the Internal Revenue Service.
--Joe Richter in Princeton (609) 279-4016 and Dane Hamilton in
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