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The Green Guide

Global Opposition Causes Monsanto To Face Uncertain Future

Posted: Sunday, November 14, 1999 | 6:14 a.m.

Monsanto faces its many options

By Robert Steyer
Of The St. Louis Post-Dispatch

It's becoming clear that Robert B. Shapiro's vision exceeded
his company's coffers and Wall Street's patience.

Investors, analysts and some Monsanto Co. insiders believe
Monsanto's chairman soon will make a deal that will
dramatically alter his goal of
engineering a life sciences company. A deal could come
within a few weeks or a few months.

Shapiro didn't invent the term "life sciences company,"
which describes the melding of nutrition, biotechnology,
crop protection and medicine under one corporate roof.

But he has been the most passionate proponent, even as more
well-heeled competitors have vacillated.

Now, it appears Shapiro may wave the white flag with some
transaction -- merger, sale, spin-off, joint venture -- that
will cut back on Monsanto's ambition.

"I think the old concept of life sciences is on life
support," said William Fiala, an analyst for the Edward
Jones brokerage.

Fiala and other analysts, who have followed Monsanto's
transformation from a traditional chemical company, said
Shapiro is being pressured by some events beyond his
control.

He is being roughed up by the quick-score behavior of big-
time money managers who control about 80 percent of
Monsanto's stock. "Once that pressure starts, you can't
afford to have the institutional investors dumping their
stock," said a former Monsanto executive who requested
anonymity.

"Many people look at life sciences as providing some sort of
short-term dividend, but that's never been the case," said
Sano Shimoda, president of BioScience Securities, in Orinda,
Calif., an agribusiness research firm. "Life sciences is a
long-term strategy."

Several bigger companies -- such as DuPont and Novartis --
have the money to carry on the life sciences concept if
Monsanto gets carved up. But these companies still view life
sciences as a collection of components rather than as a
unified business that weaves together all of the units.

"Monsanto is the professor; the other companies are the
students," Shimoda said. "Monsanto is the leader in creating
this
vision, and it put its money where its mouth was."

But Monsanto gagged on its heavy spending -- about $8
billion worth of transactions between 1996 and 1998,
including one deal still pending.

Shapiro's desire to buy seed companies stretched Monsanto's
balance sheet and weakened its stock price, despite big
revenue infusions from the herbicide Roundup and, this year,
from the arthritis drug Celebrex.

Seeking to finance his vision, Shapiro talked to many drug
and chemical companies before embarking on an ill-fated
merger plan with American Home Products Corp. last year.

Monsanto is talking to many companies now, and Shapiro has
often said that everybody in this business talks to
everybody else.

"This time, it's for real," said a former Monsanto
executive. After the American Home merger collapsed 13
months ago, Monsanto moved quickly to create a financial
recovery strategy. It issued stock and debt and started
divesting assets. Monsanto's credit ratings barely budged
downward, but investors continued to snipe.

Meanwhile, Shapiro failed to build the enhanced-nutrition
component of his life sciences dream. While Monsanto's
president, he was the point man for the $1 billion purchase
in late 1995 of Kelco, a maker of food ingredients.

Kelco never blossomed. Monsanto almost shut down its
alginate business - food ingredients derived from brown
seaweed - before selling it at a bargain price. The bigger
part of Kelco, the biogums ingredient business, is for sale.
So is the rest of the consumer products division, including
the artificial sweetener NutraSweet.

Monsanto's stock price has never reached the levels it
enjoyed during the American Home courtship.

The stock has climbed about 20 percent in little more than a
week thanks to rumors of impending deals and to a three-way
slugfest among giant drug companies.

Investors are betting on a new round of drug industry
consolidation, figuring Monsanto will be engulfed by it.
Monsanto has been urged by some analysts to sell or spin off
its drug
subsidiary, G.D. Searle & Co. in the name of shareholder
value.

At the same time, several Monsanto peers are pulling back on
the agricultural part of their life sciences strategy.

Novartis, DuPont and American Home are firing employees in
their crop protection divisions. American Home, Novartis and
AstraZeneca are hinting at sales or spinoffs of their crop
units.

As competitors struggle, Monsanto's farm products division
is outperforming them during a worldwide agriculture slump.

Given the complications in the food and farm arenas,
analysts can't agree on what Monsanto will do next. What
deal makes economic sense, supports research and rewards
shareholders?

Merging with DuPont or Novartis would trigger anti-trust
alarms; the deals would put a lot of seeds in few hands.
Spinning off Searle would fetch a nice price, but would
leave Monsanto vulnerable as long as the farm economy
remains depressed and biotechnology is controversial.

Merging with a drug company would not solve the farm or
biotech issues. Pfizer, for example, likes Searle but has no
interest in agriculture. Resurrecting an American Home-type
deal is always possible. The merged company could then spin
off the agriculture units as a separate entity - but it
might not yield much of a
price.

There are plenty of reasons - unrelated to drugs or crops -
why analysts expect Monsanto to make a big deal soon.
Accounting rules are expected to be revised by the end of
2000, repealing or scaling back existing rules that offer
tax advantages for mergers.

Analysts also believe that Shapiro, 61, doesn't have a
successor to forcefully promote his vision. They say
Monsanto's president Hendrik Verfaillie is a competent
manager with strong agriculture expertise, but they say he
is not the ringmaster for the multi-faceted life sciences
show.

"An independent Monsanto is gone because the former vision
as we knew it is gone," said a long-time Monsanto watcher on
Wall Street. "There's not enough glue to hold life sciences
together under one company. You can expect more alliances in
the future for pieces of life sciences."

Still, some people cling to the notion of Monsanto as an
independent company. "Sure, it could happen but there would
be tremendous risk," said Shimoda, the agribusiness analyst.
The risk is a depressed stock price and prospects of
shareholder suits. The risk will remain as long as protests
against biotech crops create uncertainty among consumers,
farmers and investors.

Monsanto has been staggered by the virulent reaction of
European consumers, politicians and, ultimately, food
company customers against genetically engineered foods.

Overseas protests, foreign food labeling laws and Europeans'
vows to avoid bioengineered foods have worked their way back
to the United States. American farmers, who have
embraced biotech crops, now wonder how much cotton,
soybeans, canola and corn they should buy for the next
planting season.

Even if biotech crops help them cut costs of using chemicals
to kill weeds and insects, they don't know if they can find
adequate
markets for these crops. Despite efforts by trade groups and
companies to alleviate these fears, experts say many farmers
will wait longer than usual to make seed-buying decisions
this year.

Right now, Shapiro's vision is in the hands of the highest
bidder. Analysts expect Monsanto could fetch a price of at
best $55
a share, or about $10 a share better than Friday's closing
price.

Many people who question some of Monsanto's tactics and fret
about its stock price still find time to praise Shapiro's
vision.

"The manipulation of food and the work with genetics just
may be way too early (for investors to embrace)," said Alex
Hittle, who follows the life sciences industry for A.G.
Edwards & Sons. "Twenty years down the road, we might take
the pieces of Monsanto and put them back together again."

=========

STAY INDEPENDENT AND MAINTAIN ITS STRATEGY

PRO: Monsanto keeps intact its life sciences vision and
retains its impact on the community.

CON: The company risks stock price beating, analyst
opposition and shareholder lawsuits. Option provides no
protection against chronic crop biotech protests and doesn't
accelerate debt-cutting efforts.

MERGE WITH A DRUG/CHEMICAL GIANT

PRO: Monsanto relieves its debt burden, and provides
marketing money and muscle. The company maintains research
money.

CON: Control over research goals is cut, unless deal is true
merger of equals. Monsanto's corporate identity weakens.
Culture issues emerge, and the move could spark layoffs.

SELL THE WHOLE COMPANY

PRO: The benefits are similar to a merger: Monsanto relieves
its debt burden, and provides marketing money and muscle.
The company maintains research money.

CON: Severe job cuts result, especially if deal is hostile.
Control over research ends; Monsanto's corporate identity is
erased.
Community/philanthropy efforts are hurt. Tax consequences
are more severe.

MAKE A DEAL WITH A BIG BIOTECH COMPANY

PRO: A joint venture/merger with Genentech, Biogen, etc.
keeps research aim on farm and pharmacy efforts, adds
marketing clout to biotech firms and offers better tax
benefits than a sale.

CON: High-leveraged, high research-spending companies are
combined. The move doesn't offer quick debt relief, doesn't
solve crop biotech albatross and raises questions of whose
vision prevails.

SPIN OFF SEARLE AS AN INDEPENDENT COMPANY

PRO: Gives a quick cash infusion to cut debt, offers a home
for the drug unit, provides better tax deal than selling
Searle, and calms investors and analysts -- at least for a
while.

CON: The move kills vision of life sciences, chokes off big
profit-producer in Celebrex arthritis drug, leaves
farm/biotech unit isolated and puts Monsanto in play for
takeover.

PARTNER WITH ANOTHER COMPANY

PRO: Move could relieve some financial pressure. Partners
could combine marketing forces, whether the deal is with
Monsanto or just Searle. The move offers a better tax deal
than outright sale.

CON: A joint venture requires a clear understanding of who's
in charge. This option's track record is mixed in life
sciences. Corporate culture and layoff issues could emerge.