ST. LOUIS (AFX) - Monsanto Co. will pay $1.5 billion in cash to purchase Delta and Pine Land Co. in a merger of two of the world's largest seed companies, a move that would end a long-standing legal dispute stemming from a failed merger eight years ago.
'It's admittedly a transaction with some history, and some complexity,' Monsanto chairman, president and chief executive Hugh Grant said Tuesday in a conference call with investors. 'This is a business deal first,' he said, though he called removing the legal issue 'a bonus.'
Monsanto first announced plans to buy Scott, Miss.-based Delta and Pine Land in 1998, but backed out, prompting a legal dispute that continued until the new agreement. Monsanto said the case will be dismissed once the merger is complete.
Delta and Pine Land shareholders will receive $42 per share in cash, a premium of 16 percent over the stock's closing price of $36.24 Monday.
Directors for both companies have approved the deal, which must still be approved by Delta and Pine Land shareholders and pass antitrust clearance.
Delta and Pine Land is a leading cottonseed company and operates the largest and longest running private cottonseed breeding program in the world. St. Louis-based Monsanto is one of the world's largest agricultural products companies and makes Roundup, the world's best-selling herbicide.
'Delta and Pine Land represents an excellent fit for our company as we look to bring value-added traits and high-quality seed to cotton growers around the world,' Grant said.
Monsanto said the acquisition will allow for more investment in breeding, giving cotton farmers who plant Delta and Pine Land seed varieties more choices.
D&PL president and CEO Tom Jagodinski called the companies 'a natural fit that will provide a complete platform of cutting-edge seed technologies to our global farmer customer base for years to come.'
Delta and Pine Land shares rose $4.10, or 11.3 percent, to close at $40.34 on the New York Stock Exchange, while Monsanto shares gained 39 cents to $45.56.
Analyst Kevin McCarthy of Bank of America Equity Research said the deal helps Monsanto avoid litigation risks, but at a high cost considering the premium paid over Delta's stock price. But he noted the merger makes Monsanto the biggest player in cotton seeds -- Delta and Pine Land controls about half of the U.S. cotton seed market, compared to Stoneville, which has about 12 percent of the market.
Monsanto said it will finance the purchase through a combination of cash on hand and a debt offering.
The company has told the Justice Department it will divest the U.S. assets of its Stoneville cottonseed business if necessary to gain approval for the purchase, and Grant said he believes that move will be necessary. Monsanto took on the Stoneville brand in February 2005 as part of its purchase of Emergent Genetics Inc.
McCarthy agreed that the Justice Department will look closely because if Monsanto is not forced to divest Stoneville, the company will control more than three-fifths of the nation's cottonseed business.
Monsanto said it expects the deal to add to its bottom line by the second year after closing.
Monsanto has been buying smaller seed companies over the past year or so to boost access to U.S. farmers. Spurred largely by sales of seeds and genomics, the company's revenue grew 15 percent to $2.35 billion in third-quarter results announced June 29, and profits rose more than 600 percent to $334 million, or $1.21 per share.
Sales of Monsanto's ag products, including Roundup, rose a more modest 3 percent in the quarter.
In the 1998 deal, Monsanto would have paid $1.9 billion for Delta and Pine Land. Monsanto backed out, citing the Justice Department's unwillingness to approve the transaction 'on commercially reasonable terms.'
D&PL sued Monsanto in 2000, claiming Monsanto didn't make a reasonable effort to get antitrust clearance.
This time around, Monsanto officials said they expect approval of the transaction.
The two companies have waged other battles, too. In 2004, Monsanto sought to end 8-year-old cotton seed licensing agreements with Delta and Pine Land, saying efforts to resolve long-standing disputes over royalty payments and use of property rights proved unsuccessful.
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