Monsanto becomes the largest supplier of fruit and vegetable seeds in the world
The New York Times
January 25, 2005
By Andrew Pollack
In at least a temporary diversification away from genetically modified crops, Monsanto, the agribusiness company, agreed yesterday to pay about $1 billion to acquire Seminis, the world's largest producer of fruit and vegetable seeds.
Until now, Monsanto has focused on corn, soybeans and cotton seeds, and on using genetic engineering to produce crops that are resistant to herbicides and insects.
But executives said yesterday that Monsanto would develop new vegetable varieties using conventional breeding. They said the fruit and vegetable seed business could grow without biotechnology, based on a consumer movement toward healthier diets.
"It's fine to dream, but you have to decide what you're going to do tomorrow morning," Monsanto's chief executive, Hugh Grant, said about biotech fruits and vegetables during a conference call with analysts. "In the long term, there may be opportunities in biotech."
Some genetically engineered papaya and squash are on the market. The first biotech crop to be commercialized was the Flavr Savr tomato, developed by a biotechnology start-up that Monsanto acquired. But that tomato did not catch on.
Now industry executives say it is difficult to bring new biotech fruits and vegetables to market because of consumer resistance. Also, fruits and vegetables are small crops, making it difficult to recoup development and regulatory costs. A few years ago, Monsanto decided to focus its biotech efforts on major crops.
The acquisition comes as Monsanto has been shifting its business from agricultural chemicals to seeds and biotechnology. Over the last decade, it has aggressively acquired seed companies, mainly in the corn and soy business, igniting some concerns that the markets were becoming too concentrated.
The new acquisition not only makes Monsanto the largest supplier of vegetable seeds in the world, but also, according to the company's calculations, the largest seed and biotech company over all. It would surpass DuPont, which owns the corn seed giant Pioneer Hi-Bred, in terms of revenues derived from seeds and biotech traits.
Seminis, based in Oxnard, Calif., had sales last year of $526 million, with its leading products being tomato, cucumber, beans and pepper seeds. Its main brands are Seminis, Asgrow, Petoseed and Royal Sluis and it sells mainly to farmers, not gardeners. But, with partners, it has recently started to develop some consumer items, like the Bambino miniature watermelon and Lettuce Jammers, lettuce in the shape of a taco shell.
Its main rivals in fruit and vegetable seeds are Syngenta of Switzerland and Limagrain of France. Less than 1 percent of Seminis's sales come from genetically modified seeds.
Under the deal, Monsanto will pay about $1 billion in cash and assume $400 million in debt. It might also pay an additional sum of up to $125 million by the end of fiscal year 2007 based on the performance of Seminis.
Seminis was started in 1994 by a Mexican entrepreneur, Alfonso Romo Garza, who decided to create a giant vegetable seed company by acquiring smaller ones. The company went public in 1999 at $15 a share, though Savia, a Mexican company affiliated with Mr. Romo, retained majority ownership.
But the company suffered severe losses and in 2003, majority control was acquired for $3.78 a share by Fox Paine & Company, a buyout firm.
Fox Paine, based in Foster City, Calif., paid $163 million for what is now a 58 percent stake in Seminis. New management helped spur growth and restore profits before special charges. Based on the $1 billion Monsanto is paying, Fox Paine will get about $580 million, the president and co-founder, Dexter Paine, said.
Shares of Monsanto, which have nearly doubled in the last year, fell $3.62, or 6 percent, yesterday to $54.10, as investors seemed to be surprised by the size and price of the deal.
"I think the market was expecting strategic acquisitions of the bolt-on variety," like small corn-seed companies, said Kevin McCarthy, analyst at Banc of America Securities. "This deal is clearly in a different league."
Frank Mitsch, analyst at Fulcrum Global Partners, pointing to how much the price of Seminis has risen since Fox Paine bought it in 2003, said, "It does make one step back and wonder as to why this transaction didn't occur 18 months ago."
Monsanto has said that sales of its genetically modified soy, corn and cotton continue to grow, but that it has had trouble expanding genetic engineering to other crops.
It dropped an effort to introduce genetically modified wheat last year after some American farmers said such an introduction might hurt exports. And its genetically modified grass for golf courses has run into opposition from environmental groups.
With fruits and vegetables, it said, it will analyze genes in the crops to speed conventional breeding of improved varieties but would refrain for now from putting new genes into the crops.