Los Angeles Times
January 25, 2005
By Jerry Hirsch, Times Staff Writer
As its pesticide unit declines, it plans to buy Seminis to boost seed business
Seeds are in; pesticides are out.
That's the mantra at agribusiness giant Monsanto Co., which said Monday that it planned to purchase Oxnard-based seed company Seminis Inc. for $1 billion.
Monsanto, the maker of Roundup weedkiller, has seen its pesticide and herbicide business decline with the rise of insect- and disease-resistant strains of crops. So it has been expanding into seeds, especially genetically modified varieties.
For its part, Seminis has focused on conventional plant breeding to develop new crop strains.
"The value in the agriculture industry has shifted dramatically away from chemicals and into seeds," Monsanto Chief Executive Hugh Grant told analysts and investors in a conference call.
The world's largest vegetable seed company, Seminis is best known for its top-selling lines of tomatoes, cucumbers and beans. It also has developed innovative specialty crops, such as red carrots, orange cauliflower and the Bambino watermelon — a seedless melon about the size of a cantaloupe.
All told, Seminis sells more than 3,500 fruit and vegetable seed varieties to farmers under the Seminis, Asgrow, Petoseed and Royal Sluis brand names. It has 16,000 customers in 150 countries.
"If you have eaten a salad, you have eaten a Seminis product," said company spokesman Gary Koppenjan.
Seminis also owns the world's largest fruit and vegetable seed bank, which it uses to crossbreed plants to create strains that require less agrochemicals, increase crop yield, reduce spoilage, offer longer shelf life and create better-tasting foods.
Monsanto also does a large seed business but concentrates on canola, corn, cotton and soy.
Vegetable seeds are a high-margin business, and Monsanto wants Seminis to complement its growing expertise in genetically engineered crops, CEO Grant said, though genetically modified vegetables aren't in Monsanto's plans for Seminis for now.
"This is going to be about breeding," he said. "In the long term, there may be an opportunity in biotechnology."
In addition to paying $1 billion in cash, Monsanto said it would assume $400 million in Seminis debt and make a performance-based payment of up to $125 million payable by the end of the 2007 fiscal year.
If there is no opposition from antitrust regulators, the sale is expected to close this year. Seminis would operate as an independent subsidiary headed by Bruno Ferrari, Seminis' president and chief operating officer. He would report to Brett Begemann, Monsanto's executive vice president.
Monsanto would be wise to let Seminis operate on its own, said Doug Ranno, managing partner of Colorful Harvest, a Monterey, Calif.-based farm company that is developing vegetable products, including red and white carrots and a striped tomato, with Seminis.
"We have invested years of work with their researchers, and you have to look at those people as a key part of the assets Monsanto is acquiring," Ranno said.
Mexican entrepreneur Alfonso Romo put Seminis together about a decade ago from half a dozen seed concerns. It has 2,900 employees, including 400 at its Oxnard headquarters and 200 at its research headquarters in Woodland, Calif.
After a public stock offering of $15 a share in 1999, Seminis had trouble integrating acquisitions and foundered, its stock dropping to as low as $1.
In 2003, a group led by private equity firm Fox Paine & Co. of Foster City, Calif., purchased the business for $3.40 a share, or about $350 million in cash and $300 million in debt. The sale to Monsanto would result in a handsome payday for Fox Paine, which spent about $165 million for its 58% stake in Seminis — and will walk away with as much as $577 million if the deal closes.
A new management team, as well as steady gains in cash flow and market position, is responsible for the increase in value, said Dexter Paine, president of the equity firm.
"The idea of selling Seminis to Monsanto came up as part of an ongoing dialogue between the two companies," Paine said, noting that Seminis has a technology-sharing agreement with Monsanto, and Fox Paine has been involved in transactions with Monsanto.
Some on Wall Street think Monsanto would be better off focusing on its genetically modified crop business rather than making a move into conventional seed breeding.
"We find it hard to conceive that earnings growth from vegetable seeds can exceed that of Monsanto's current lineup of genetically modified crops," Credit Suisse First Boston analyst William R. Young said in a research note. He rated the shares "underperform."
Seminis lost $16.3 million on revenue of $525.8 million in its 2004 fiscal year, which ended Sept. 30.
Monsanto, based in St. Louis, posted sales of $5.5 billion in its fiscal year ended Aug. 31. Just under $2 billion of that was from sales of Roundup.
Monsanto shares fell $3.62, or 6%, to $54.10 on the New York Stock Exchange after the purchase announcement was made.
* Bloomberg News was used in compiling this report.