June 1, 2007

 

Monsanto to sell US branded cotton operation

 

 

The US Department of Justice said Thursday (May 31) it would force agricultural business giant Monsanto to divest itself of its US branded cottonseed business in order to win approval of its US$1.5 billion takeover of rival Delta & Pine Land Co. 

 

The disposal is one of a series of divestitures to which the companies must agree for their merger to proceed.

 

In a statement, the Justice Department said that, without the disposals, the transaction would have caused higher prices to US farmers for traited cottonseed and would have blocked further developments of traits for cottonseed.

 

Traited cottonseed is seed that has been genetically modified to make it more resistant to insects or to build up a tolerance to herbicides.

 

"Without a remedy, the acquisition of Delta & Pine Land by Monsanto would pose a serious threat to competition for the sale of traited cottonseeds," said Thomas O. Barnett, assistant attorney general in charge of the antitrust division.

 

The federal government filed a civil lawsuit in US District Court in Washington seeking to block the deal unless the two companies agreed to sell off certain assets.

 

The required disposals include Monsanto's Stoneville pedigreed seed company, 20 Delta & Pine Land cottonseed lines and other significant assets.

 

Under terms of the deal, Monsanto will be permitted to retain its licensed cottonseed business in which it develops traits that other developers of cottonseed can use.

 

Monsanto subsequently issued a statement in which it said it agreed to sell its Stoneville cottonseed brand and related business assets to Bayer CropScience, a division of Bayer AG, for US$310 million. It said it also found buyers for various other assets of its own and Delta & Pine that must be sold off.

 

Once it completes the sale of Stoneville, Monsanto must provide Bayer CropScience with a license as favourable as the current Delta & Pine license for Monsanto traits.

 

The combined firm also will have to sell to Switzerland's Syngenta Crop Protection AG (SYT) a group of 43 Delta & Pine cottonseed lines.

 

Monsanto must amend certain terms in current licensing agreements to allow cottonseed companies to sell product that includes non-Monsanto traits.

 

"We remain focused on closing our acquisition of this leading cottonseed brand as soon as possible and continuing its tradition of delivering innovation to the farm," said Hugh Grant, chairman, president and chief executive of Monsanto.

 

The Justice Department statement went on to say the divestitures would preserve the current competition in the traited cottonseed market, prevent delays to new products coming to market and ensure a competitor independent of Monsanto continues to operate in the market.

 

Bayer CropScience is already the second-largest supplier of cottonseeds in North America. The company said the Stoneville acquisition will enhance its position in the market.

 

Speaking to reporters during a conference call later Thursday, Barnett said the Justice Department hadn't yet been notified of the proposed buyer of Stoneville.

 

He said that if officials didn't approve, Monsanto's acquisition of Delta & Pine would "have to be unravelled."

 

Monsanto has 90 days to meet terms of the consent decree.

 

Barnett also said that, if Monsanto couldn't reach a sale price for the assets it must sell to Syngenta Crop Protection, it would have to give those assets to the Swiss company free of charge.

 

The Justice Department statement also said that, barring any action by government officials, the combined company would have dominated the US traited cottonseed market with nearly 95 percent of all sales in the southern states, where the product is for the most part produced.

 

Monsanto is a major force in the US agribusiness marketplace. In addition to cotton, the St Louis company develops seeds in large-acre crops such as corn and oilseeds including soybean and canola, as well as small-acre crops like vegetables.

 

It also manufactures the popular herbicide Roundup and other herbicides used by farmers globally. According to the Justice Department statement, Monsanto had revenue of US$7.6 billion in 2006.

 

Scott, Mississippi-based Delta & Pine is much smaller, although with US$400 million in revenue in 2006, it is the world's largest cottonseed producer.

 

The takeover was announced in August, and Delta & Pine shareholders approved it on Dec 21.