Monsanto Sows Seeds for Success With DeKalb and Delta & Pine Land

18 May 1998 00:00  [Source: ICB Americas]

Monsanto Company is buying seed genomics firms DeKalb Genetics Corporation and Delta & Pine Land Company in separate deals worth more than $4 billion, further solidifying its leading position in agricultural biotechnology.

"The acquisitions of DeKalb and Delta & Pine Land provide both technology and global reach by creating broader seed platforms that enable us to better connect our traits to the needs of growers and processors, and allow us to more quickly anticipate new markets or marketplace trends," says Monsanto chairman and CEO Robert B. Shapiro.

Brown Brothers Harriman analyst Theodore Semegran says the acquisitions "should enable Monsanto to be even more competitive in most crops for its growing transgenic product lines and Roundup Ready franchise."

Monsanto, which already has 40 percent stake in DeKalb, will make a tender offer to acquire the remaining DeKalb common shares for $100 per share, or $2.5 billion in cash. The tender offer is conditional on the receipt of the majority of the voting DeKalb common stock.

Mr. Semegran estimates DeKalb will increase Monsanto's share of the retail corn seed market by about 15 percent on top of its 1 to 2 percent share from its Asgrow line and 25 to 30 percent share of the wholesale foundation seed market from Holden's Foundation Seed. In soybeans, the acquisition increases Monsanto's market share by 4 to 5 percent, up from its current 25 to 26 percent share, according to the analyst.

Morgan Stanley analyst Les Ravitz says Monsanto management expects the De-Kalb acquisition to be dilutive for the next three years. In fiscal 1997, DeKalb had sales of $451 million and earnings of $28.8 million.

In a separate transaction, Monsanto has agreed to acquire Delta & Pine Land in a stock deal in which Monsanto will issue 0.8625 shares of its stock for every share of Delta & Pine Land, representing a purchase price of $1.9 billion. Monsanto already owns 4.7 percent of Delta's common shares and 800,000 shares of non-voting stock. Delta & Pine Land had revenues of $183 million and earnings of $6.9 million in fiscal 1997.

Mr. Semegran expects Delta & Pine Land to boost Monsanto's share of the retail cotton seed market from about 7 to 8 percent to more than 60 percent.

On antitrust concerns, JP Morgan analyst Gilbert Yang says the 60 percent market share in cotton seed could "raise red flags at the Department of Justice." He cautions that Monsanto may have to sell its Stoneville Pedigreed Seed business to appease regulators.

In 1998, Monsanto's agricultural bio-technology is expected to be used on approximately 50 million acres worldwide, up from 20 million acres in 1997. Responding to the announcement, DeKalb shares spiked up $17.25 to $94.25, but Delta & Pine Land fell $6.75 to $46.

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