Agribusiness Monsanto Co. said Monday it will buy vegetable and fruit seed company Seminis Inc. for about $1 billion in cash, looking to capitalize on the trend of healthier diets while further migrating from its chemical herbicide business.
Monsanto said it will assume an additional $400 million in debt by Seminis, the Oxnard, Calif.-based supplier of more than 3,500 seed varieties to commercial fruit and vegetable growers, dealers, distributors and wholesalers in more than 150 countries.
With competition continuing to erode Monsanto's dominance in herbicides, the maker of Roundup has increasingly focused on seeds, including genetically modified offerings able to withstand weeds, insects and disease seeds, for future profits. The St. Louis-based company already makes the DeKalb and Asgrow brands of seeds.
"The addition of Seminis will be an excellent fit for our company as global production of vegetables and fruits, and the trend toward healthier diets, has been growing steadily over the past several years," Hugh Grant, Monsanto's chairman, president and chief executive, said in a statement.
Monsanto also said it also would make up to $125 million in "performance-based payments" to Seminis' current owners if Seminis achieved certain revenue-growth targets.
Citing the planned acquisition, Monsanto pared its estimate for fiscal 2005 earnings to 86 cents to $1.06 per share, down from a previous range of $1.56 to $1.71.
Analysts surveyed by Thomson First Call were expecting Monsanto's earnings of $2.05 per share.
In trading Monday on the New York Stock Exchange, Monsanto shares fell $3.62, or 6.3 percent, to close at $54.10. The shares are still near the higher end of their 52-week range of $29.01 to $59.29.
Fulcrum Global Partners analyst Frank Mitsch attributed the slide in Monsanto's stock to the deal's size, as well as the perception that Monsanto may be overpaying. Seminis' current majority owner, private equity firm Fox Pain & Company LLC of San Francisco, bought Seminis in a September 2003 transaction valued at more than $650 million.
"I think investors aren't pleased that Monsanto is spending roughly double on a valuation basis what Seminis sold" 16 months ago, he said. "That's a little bit disheartening."
Mitsch also said investors may have chosen Monday as a good exit point from a stock that surged 93 percent in 2004.
Still, he said the acquisition of Seminis, had sales of $526 million in fiscal 2004, which should pay off for Monsanto.
"Monsanto has a strong presence and can breed around the globe, so they can help get new seeds to the marketplace sooner than Seminis could," he said.
Pending regulatory approvals, Monsanto expects the Seminis acquisition to close sometime between March and May. The company said the deal should be accretive to earnings per share, cash flow and revenue growth in fiscal year 2006, its first full year of operation.
Seminis will be as a wholly owned Monsanto subsidiary, headed by its existing president and chief operating officer.
Monsanto said it expects to continue Seminis' focus on developing products using advanced breeding techniques, with biotech applications an option well down the road.
The deal comes two months after Monsanto's newly formed holding company — American Seeds Inc. — acquired Indiana-based seed company Channel Bo Corp. for $120 million cash. Monsanto formed American Seeds to support regional seed businesses with capital, genetics and technology investments.
That push comes as biotech crops are flourishing in the United States and taking root overseas, accounting for several tens of billions of dollars in crops in five leading countries despite European resistance to the technology.