St. LOUIS -- Monsanto Co. and rival drugmaker Pharmacia & Upjohn Inc. have agreed to merge in a $26.6 billion stock transaction and sell part of the agriculture business that has dragged down Monsanto's share price.
Monsanto stockholders will exchange each share for one in the combined company in what's described as a merger of equals without a premium. Pharmacia holders will get 1.19 shares for each of theirs.A merger would add Monsanto's blockbuster arthritis drug Celebrex to a raft of new products that have helped Pharmacia reverse its troubled fortunes following the merger that formed it in 1995. The combined company would sell up to 20 percent of Monsanto's agriculture unit in an initial public offering.
"Both of these companies have a lot of value that has not been recognized by Wall Street," said Michael Krensavage, an analyst at Brown Brothers Harriman & Co. Still, he said, "I'm not sure that this unlocks that value," noting Pharmacia shares dropped 5.6 percent Friday on news the companies were in talks.
Together, Monsanto and Pharmacia would create a company with drug sales of more than $9 billion a year, on a par with 11th-ranked Eli Lilly and Co., and a combined research and development budget of $2 billion a year, rivaling industry leader Pfizer Inc.'s $2.8 billion.
As much as 20 percent of Monsanto's agricultural unit, which makes genetically altered corn and soybean seeds and the top-selling weed killer Roundup, would be sold via an initial public offering shortly after the merger closes. The unit has weighed on Monsanto's shares, which have fallen 12 percent this year amid consumer resistance, especially in Europe, to genetically altered products.
The unit will set up its own board and management in St. Louis after the parent companies merge.
Peter Blair, an analyst with Salomon Smith Barney, said the merger may force other European agrochemicals makers to seek partners. "This puts more pressure on BASF and Bayer -- as the industry consolidates around them they are the ones left looking for partners."
Pharmacia and Monsanto said they will have the third-largest sales force in the U.S., the largest drug market and crucial to the success for all drugmakers.