KANSAS CITY, Mo. – Agriculture products company Monsanto Co. (MON) Monday said it will buy commercial fruit and vegetable seed company Seminis Inc. (search) for at least $1 billion from a private equity firm to capitalize on the trend toward healthier eating.
Monsanto, whose shares fell 4 percent, will also assume about $400 million in debt and will make a payment of up to $125 million by the end of fiscal 2007, based on financial targets.
Monsanto, a leading developer of genetic modifications for crops like soybeans and corn, said biotechnology modifications to Seminis' fruit and vegetable lines were an option, but the initial focus would be on leveraging Seminis' conventional breeding programs with Monsanto's advanced research and development to develop improved product options.
"In the near- to mid-term this is going to be about breeding," Monsanto Chairman Hugh Grant told analysts and reporters on a conference call. "In the long term, there may be an opportunity in biotechology."
Grant said the vegetable seed market is enjoying solid growth, thanks in part to healthier eating habits, and that Monsanto wants to capitalize on that.
Seminis supplies more than 3,500 seed varieties to commercial fruit and vegetable growers, dealers, distributors and wholesalers around the world, and currently has only a limited biotechnology program.
The 10-year-old Oxnard, Calif.-based company's top sellers include tomatoes, cucumbers and beans, and its seeds are sold in more than 150 countries around the world. The company had annual sales of $526 million in fiscal 2004. On a net basis, it lost $16.3 million, improved from a loss of $31.7 million in fiscal 2003, according to regulatory filings.
The company currently is privately held, with majority ownership held by funds managed by private equity firm Fox Paine & Company LLC (search), of San Francisco. Fox Paine bought control of Seminis from Mexican conglomerate Savia in a deal announced in December 2002, for about $650 million in cash and debt.
Seminis will operate as a wholly owned subsidiary of Monsanto.
The deal comes as Monsanto is shifting its focus from the highly competitive herbicide chemical business to the seed industry, where it has seen strong growth recently.
Monsanto already controls an estimated 14 percent of the U.S. corn seed market and through licensing arrangements provides germplasm and technology traits that extend its influence into about one-third of the U.S. market.
The deal is expected to close in Monsanto's 2005 fiscal third quarter, which ends in May, and be accretive to earnings in fiscal 2006, the company said.
Monsanto said the deal should not change its 2005 earnings forecast of $1.85 to $2.00 a share on an operating basis, but it revised its projected net earnings for the year to a range of 86 cents to $1.06 a share, from a previous forecast of $1.56 to $1.71.
Chief Financial Officer Terry Crews said Monsanto was slightly adjusting downward its projected return on capital for 2005 and 2006. But the combination should boost Monsanto's compounded annual growth in gross profit to 7 percent from 4 percent.
"Seminis allows us to leverage our leadership ... to almost immediately create additional growth for Monsanto," said Crews.
Monsanto shares were down $2.24, or 3.9 percent, at $55.48 on the New York Stock Exchange.