St Louis Post-Dispatch article today on the merger speculation:
Monsanto's stock jumps on merger speculation
By Robert Steyer
Of The Post-Dispatch
March 4, 1999
Investors bid Monsanto Co.'s shares up by 5 percent
Wednesday on renewed speculation about a possible
merger with Du Pont Co.
Neither company would comment on a report in The New
York Times that executives are in the early stages of
negotiating some sort of deal. "Our long-standing policy is
not to comment on this kind of speculation," said Scarlett
Foster, a Monsanto spokeswoman.
Wall Street has been rife in recent years with rumored deals
involving Monsanto and Du Pont -- as well as deals
involving Monsanto and several other companies.
"It's not really news," chemical industry analyst Fred Siemer
said of the reported merger talks with Du Pont. "The timing
is news. All of this stuff has been speculated on before."
Monsanto thought it had found a merger partner last June,
when it agreed to a deal with American Home Products
Corp. At the time, Monsanto Chairman Robert B. Shapiro
noted that "everybody in the pharmaceutical and agricultural
industries" was talking with everybody else in those
businesses.
After Monsanto and American Home Products Corp.
canceled their deal in October, Du Pont popped to the top of
the list of the usual suspects.
Analysts figured Monsanto would have trouble remaining
independent, even though Shapiro said last October that a
big deal wasn't in his plans. "We're not going out to look for
a megamerger," Shapiro said. "It's unlikely we'll get into a
big merger discussion."
Shapiro said his company would seek marketing alliances,
especially with drug companies to help sell a number of
promising drugs. One example is a co-marketing
agreement with Pfizer Inc. to sell Celebrex, Monsanto's new
arthritis medication.
But many analysts continue to question Monsanto's ability to
go it alone, especially when other life sciences companies
-- those that mix medicine, food, farm chemicals and
biotechnology -- were merging or talking about merging.
Monsanto has stretched its balance sheet with a series of
aggressive acquisitions of seed companies. By the end of
1998, its debt equaled 59 percent of total capitalization, up
from 47 percent in 1997.
Without a partner, Monsanto has launched a financial
independence plan. It has raised more than $4.2 billion by
selling stock, bonds and other securities. It wants to raise
another $1 billion by selling several businesses, which
employ as many as 1,500 people. It recently said it would
dismiss or buy out 1,700 workers.
Chemical analyst Siemer said Monsanto is being propelled
now by Celebrex, which reached the market in mid-January
and has enjoyed the fastest start of any drug except the
impotence pill Viagra.
"For investors interested in Monsanto for the short term, the
story is Celebrex," said Siemer, whose F.H. Siemer & Co. is
based in Highland, N.Y. "But for the long term, Monsanto
has to find someone else."
Monsanto's stock closed at $46.625 a share, up $2.25. Du
Pont's stock lost $1.06, closing at $50.25.
"The odds of a full-fledged merger are very small," said
William Fiala, a chemical industry analyst for the Edward
Jones brokerage. "But it wouldn't surprise me if they did
some sort of venture like merging their drug companies."
Fiala added: "Every life sciences company in the world runs
up a pretty big phone bill each month. They talk, but that
doesn't mean they will merge."
Sergio Traversa said the type of combination -- merger,
acquisition or joint venture -- is less important than the
guarantee of strong management and minimal stock
dilution.
"Monsanto is an attractive company -- it can go forward by
itself," said Traversa, who tracks the company for Mehta
Partners, a New York-based investment research firm. "If
they have the right partner, they can maximize what they
have."
But is Du Pont the right partner?
Last year, Shapiro said Du Pont wasn't a good fit because
its drug business was too small. Du Pont's pharmaceutical
unit, which had sales of about $1.3 billion, is half the size of
Monsanto's drug subsidiary, G.D. Searle & Co.
And Searle's research pipeline has sprung a few leaks
since the American Home deal was announced last June.
Searle has canceled work on four drugs since then -- two
anti-clotting medications and two cancer therapy drugs.
A Monsanto-Du Pont deal also would raise antitrust
questions in the field of crop biotechnology.
"It would be like Coke and Pepsi merging," Fiala said.
If the companies merged, they would dominate commercial
corn and soybean seed markets in North America.
Monsanto owns several seed companies, including Asgrow
and DeKalb. Du Pont owns 20 percent of Pioneer Hi-Bred
International Inc.
Monsanto has 15 percent of the seed corn market and
Pioneer has 42 percent, according to BioScience Securities
Inc., an agribusiness investment research firm in Orinda,
Calif. Monsanto has 24 percent of the soybean seed market;
Pioneer has 16 percent.
Monsanto, Pioneer and Du Pont control about half of the
U.S. market for foundation seed corn, the seeds that are
sold to commercial growers.
stlnet.com |
