New York Times
08-16-06
Monsanto Buys Delta and Pine Land, Top Supplier of Cotton Seeds in U.S.
By ANDREW POLLACK
Monsanto will acquire the Delta and Pine Land Company, the nation’s leading
supplier of cotton seeds, in a move that would add to Monsanto’s commanding
position in the business of biotechnology crops.
The $1.5 billion cash deal, announced yesterday, would give Monsanto control of
half the American market for cotton seeds and could face tough antitrust scrutiny
at a time when smaller seed companies are being gobbled up by larger ones.
Indeed, Monsanto tried to buy Delta and Pine Land in 1998, only to drop the deal
the following year, saying it could not obtain approval from federal regulators.
Delta and Pine Land, saying Monsanto did not try hard enough to win clearance,
sued for $2 billion in damages and the companies have had a somewhat
fractious relationship ever since.
The new deal would end that litigation as well as an arbitration proceeding in
which Monsanto is seeking the right to revoke Delta and Pine Land’s license to
use Monsanto’s genetically engineered technology to provide cotton with
herbicide and insect resistance.
“We’re not naïve to the history between the parties, but we’re both genuinely
committed to make the transaction work,” Hugh Grant, the chief executive of
Monsanto, said in a conference call with analysts.
He said that the market had changed since 1998 and that the deal could win
clearance this time. Delta’s share of the cotton seed market has fallen to a little
over 50 percent, from about 80 percent, largely because of competition from
Bayer CropScience.
Mr. Grant said Monsanto expected that to win clearance it would have to divest
itself of the American cotton seed business of Stoneville, a company it acquired
last year that has about 12 percent of the market. If the deal cannot win
clearance, Monsanto may have to pay Delta and Pine Land as much as $600
million.
Monsanto also dominates the market for the genetically engineered traits for
insect and herbicide resistance, which could also present an antitrust issue. “It’s
a concentration issue that should be a matter of concern,” said Neil E. Harl, an
agricultural economist at Iowa State University.
But Mr. Grant said that other big companies were now developing such traits.
“It’s a much more competitive business than it was a decade ago,” he said.
The deal for Delta, which must still be approved by that company’s shareholders,
is worth $42 a share, a 16 percent premium to Delta’s closing price on Monday.
The company, based in Scott, Miss., had $366 million in sales last year.
Delta’s stock yesterday rose $4.10, or 11 percent, to $40.34. Monsanto shares
gained 39 cents, to $45.56. Mr. Grant said the deal would allow Monsanto to get
more of its biotech traits into cotton, both in the United States and around the
world.
Monsanto, based in St. Louis, licenses its biotechnology traits to seed
companies, including Delta, which incorporate them in their own varieties. More
than 80 percent of the cotton grown in the United States this year was genetically
engineered, according to the Department of Agriculture.
Monsanto also sells seeds on its own and has been buying seed companies, in
part to obtain desirable varieties in which to insert its genetically engineered
traits. While it is strong in sales of corn and soybeans, it has been weaker in
cotton. Monsanto also paid about $1 billion last year to buy Seminis, the world’s
largest supplier of fruit and vegetable seeds,
Mr. Grant said Delta had been slow to incorporate the latest Monsanto crops into
its cotton varieties. Buying the company “could significantly accelerate our
technology penetration into this business,” he said.
Monsanto could also be aiming to significantly decelerate the penetration of its
agricultural biotechnology rivals into the cotton business. In recent years, Delta
and Pine Land has signed deals to use new technology for herbicide and insect
resistance developed by DuPont and Syngenta.
Tom Jagodinski, chief executive of Delta, said in an interview that his company
stood to make more money from the DuPont and Syngenta traits because it
negotiated more favorable terms than it did with Monsanto.
But once Monsanto buys Delta, it could de-emphasize the DuPont or Syngenta
technology, or those companies could withdraw from their deals.
Mr. Jagodinski told analysts in a conference call that the deals with Syngenta and
DuPont can survive a change in control of his company. “We’re going to continue
to work with them up until the closing,” he said. “What Monsanto does with them
after that is up to Monsanto.”
A spokeswoman for Monsanto said the company “would be delighted to continue
to offer those traits” but does not yet know the details of the contracts between
the companies.
The deal could also conceivably deal a blow to a controversial genetic
engineering technology that makes sterile seeds as a way of forcing farmers to
buy new biotech seeds each year rather than saving the seed from one year’s
crop to plant the next. Delta, which developed the technology along with the
United States Department of Agriculture, has continued to work on it. But
Monsanto has pledged that it will not commercialize sterile seed technology.