Monsanto and chemical giant in $33bn union

David Usborne
Monday 01 June 1998 23:02

IN A dramatic reshaping of the pharmaceutical and chemical industries, American Home Products revealed yesterday that it is to purchase Monsanto Co for $33bn in stock to create a new colossus that will make everything from over-the-counter headache pills to herbicides and genetically engineered seeds.

It is a marriage that will bring together under the same roof one of the most well-known medical and drug companies in the United States, American Home, and a long-time leader in the chemical and agricultural research industries, Monsanto.

The deal comes several months after the failure of merger talks between American Home and the British pharmaceuticals giant, SmithKline Beecham. SmithKline dropped American Home when it decided to pursue a marriage with Glaxo Wellcome. That deal also failed to materialise.

There was speculation yesterday that Monsanto fell into the embrace of American Home quickly to avoid becoming a target for takeover by another of the major players in the industry, especially cash-rich Dupont and Pfizer, although this was denied by Robert Shapiro, the company's chief executive, who said: "We weren't running away from anyone." Analysts did not rule out one of the two making a counter-bid for Monsanto.

American Home's stock was up 81 cents on the news at midday in New York at $49.125 while Monsanto gained 19 cents to reach $55.56.

Still without a name, the new company will be based at American Home's home in Madison, New Jersey, with an agricultural division in St Louis, Missouri, where Monsanto is headquartered. American Home's chief executive officer, John Stafford, and his counterpart, Mr Shapiro, will be co- chairmen and joint-CEOs of the new entity.

The new company will have a market capitalisation of $96bn and will have 1998 sales totalling $28bn in products ranging from household goods, prescription drugs and supplies for farmers.

Among American Home's best-known product is Advil, the headache pill, Robitussin cough medicine and Chap Stick lip balm. Monsanto makes Roundup weedkiller and Nutrasweet, the sugar substitute.

It seems certain that overlapping between the two companies will result in some significant lay offs in their world-wide workforces.

"There will be some duplication that will have to be addressed," Mr Stafford conceded yesterday.

The two companies said they expected the merger to generate savings of $1.25bn to $1.5bn annually within three years.

"It is becoming more and more costly to take advantage of the new technologies, the new biology, that is available in both the medical and the agricultural field," Mr Stafford commented. "This combination will enable us to have the resources to be able to pursue those new technologies and turn them into products that will be helpful to the medical profession, consumers, agricultural research and other constituents."

Even assuming no counterbids emerge, the transaction will still be subject to approval from both sides' shareholders and by the usual regulatory arms of the US government. If all obstacles are over come, however, it should close by the end of this year, officials said.

Under the deal, owners of American Home Products stock will get a share in the new company for each of their shares and will emerge with 65 per cent of the equity in the combined entity. Monsanto shareholders will get 35 per cent of the shares in the new company and will get 1.15 shares for each Monsanto share.

American Home still faces the threat of class action lawsuits stemming from dieting drugs that it manufactured that were hastily withdrawn from the US market last year after potentially lethal cardiac side- effects were uncovered.

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