Monsanto to Buy Delta & Pine Land for $1.5 Billion

- Bloomberg, Aug. 15, 2006 http://www.bloomberg.com/

Monsanto Co., the world's biggest developer of genetically modified corn and soybeans, agreed to buy cottonseed maker Delta & Pine Land Co. for $1.5 billion, ending a six-year dispute that started when their last merger accord failed.

Investors in Scott, Mississippi-based Delta & Pine Land will get $42 a share, 16 percent above yesterday's closing share price. Cash and debt will be used to finance the deal, St. Louis-based Monsanto said today in a statement.

Monsanto Chief Executive Officer Hugh Grant said the seed industry has become "much more competitive,'' making the transaction possible. Monsanto abandoned its 1998 accord on concern U.S. antitrust regulators would impose stiff conditions to approve the deal. When it collapsed, Delta & Pine sued, saying the cancellation cost investors $1 billion.
The acquisition by Monsanto "makes a lot strategic sense,'' Gulley & Associates analyst Mark Gulley said. "In cotton they were very small. This gives them a market share that you are accustomed to a leader having in a major row crop.'' He recommends buying Monsanto shares.

Shares of Monsanto rose 34 cents to $45.41 at 3:01 p.m. in New York Stock Exchange composite trading. They have climbed 40 percent from a year ago. Delta & Pine Land surged $3.79, or 11 percent, to $40.03. Before today, the stock had jumped 58 percent this year.

Market Share Drops
Delta & Pine CEO Thomas Jagodinski said his company has 50 percent of U.S. cottonseed sales, down from a peak of almost 80 percent. Monsanto licenses its technologies to rival seed companies, which should help win U.S. antitrust approval, Grant said on a separate call.

Monsanto would pay Delta & Pine Land as much as $600 million should antitrust regulators block the transaction, Jagodinksi said. Cottonseed competition is intensifying amid sales gains by Bayer AG's Fibermax seed and new technologies companies including Dow Chemical Co., Jagodinski said. Bayer has 20 percent to 30 percent of U.S. sales, he said.

The Delta & Pine Land acquisition will "modestly'' boost earnings after one year, Chief Financial Officer Terrell Crews said on the Monsanto call. Delta & Pine Land had sales of $411.4 million in the nine months ended May 31, up 21 percent from a year earlier.

Monsanto probably will shed its Stoneville cottonseed business to gain antitrust approval, Grant said. The company acquired Stoneville with its $300 million purchase of Emergent Genetics Inc., which had 12 percent of U.S. cottonseed sales when the deal was announced last year.
'Antitrust Scrutiny'

"Combined U.S. market share of more than 60 percent will likely attract antitrust scrutiny,'' Banc of America Securities analyst Kevin McCarthy said in a report. McCarthy, who rates the shares "neutral,'' said the "valuation appears steep'' at 16.3 times estimated pretax earnings this year.

Monsanto in May 1998 agreed to pay $1.82 billion in stock for Delta & Pine Land. That was a "significantly higher'' earnings multiple than Monsanto is now paying, CEO Jagodinski said. The acquisition would boost Monsanto's sales by 6 percent, Gulley of Gulley & Associates said. Seeds will benefit from Monsanto's gene technology because cotton faces a large variety of pests, he said. "Delta & Pine Land has strong cotton genetics, and we believe Monsanto's leadership in providing the best cotton traits can improve on this already strong base,'' Grant said in the statement.

To enhance Delta & Pine Land seeds, Monsanto plans to increase modifications including Roundup Ready Flex for withstanding Monsanto's weed killer and Bollgard II for resisting the bollworm insect, Grant said on the call.
'Grasp Opportunities' Genetically modified cottonseeds account for 11 percent of about 220 million acres sown with seeds engineered by Monsanto, the company said in June. The companies began negotiations on the merger Aug. 10, and talks concluded last night, Jagodinski said. "You have to grasp opportunities when they are there,'' Grant said.