* Monsanto announced an earlier deal with American Home Products that
subsequently fell apart; this deal may also not reach fruition, for a
variety of reasons.
* Media coverage obviously focuses on the pharmaceutical side of the
merger, which is why it happened. Pharmacia-Upjohn has little or no
interest in the ag division.
* The merger does not to solve the problem of what Monsanto will do with
its ag chemical and seed division, nor its debt load; the announcement that
it will be spun off as a separate company, supported via a new IPO (Initial
Public Offering) is a "placeholder" announcement. It is almost certainly
not going to happen that way, but it is all Pharmacia-Upjohn and Monsanto
can say at this point, since they have to complete their merger before they
can talk about another deal.
* The merger does nothing to address the underlying weaknesses of
Monsanto's ag-chemical and seed division -- it can not generate sufficient
income to service debt; it has far too narrow a product line to support a
company of its size and service its debt; said another way, Roundup sales
account for way too much of sales and profits and are not sustainable
because Roundup is going off-patent and is soon to become a generic product
with narrower profit margins; and, Monsanto lacks the product depth and
marketing infrastructure to compete with mega-companies now forming
(Aventis; Syngenta; Dupont-Pioneer).
In all likelihood, Monsanto's ag chemical-seed division will eventually
be bought by Bayer, BASF, Dow, or possibly Sumitomo or another Japanese
company that decides to get into the agricultural inputs market in a big
way. Another of these companies -- one that passes on Monsanto -- will
probably merge with American Cyanamid (owned by American Home Products, and
for sale).
It is also possible that Monsanto's ag chemical and seed division will be
broken into a couple of pieces. Also, do not be surprised if the Delta
Pine merger collapses.
Sale to another well established company is most likely because only
through a merger with another major player in the market can a new company
overcome some of the division's inherent problems -- too narrow a product
line, lack of marketing infrastructure. In general, the longer the time
for a deal to take shape, the greater the likely discount, since the
markets are catching on to the structural problems plaguing Monsanto's ag
chemical and seed division.
As this next round of mergers/acquisitions/divestures unfolds, it will be
important to watch out for the impact on competition in major pesticide
markets as well as the relative emphasis placed on traditional pesticides,
biopesticides and softer approaches, and transgenic solutions. More on
these fronts later.
chuck
Charles Benbrook CU FQPA site www.ecologic-ipm.com
Benbrook Consulting Services Ag BioTech InfoNet www.biotech-info.net
5085 Upper Pack River Road IPM site www.pmac.net
Sandpoint, Idaho 83864
208-263-5236 (Voice) 208-263-7342 (Fax)
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