Monsanto, Pharmacia, Upjohn agree to merge

Under the terms of the agreement, each Pharmacia share would be exchanged for 1.19 shares of the combined company, while each Monsanto share would be worth one share. Monsanto shareholders would own 51 per cent of the combined company.

The yet-to-be-named company would be the 11th largest pharmaceutical firm in the world, with $10 billion in prescription drug sales. Including revenues from the agribusiness unit and other products, the combined company would have total sales of about $17 billion.

The company would boast an arsenal of top-selling drugs to treat ailments including arthritis, glaucoma, colorectal cancer and insomnia. Monsanto’s Celebrex arthritis treatment, introduced this year, has already topped $1.4 billion in sales, while Pharmacia’s Xalatan is the world’s best-selling prescription medication for glaucoma.

The company would also own the leading herbicide, Roundup, and make genetically modified corn, soybean and cotton seeds–immensely popular with US farmers but the target of fierce opposition in Britain and elsewhere.

Monsanto and Pharmacia said they expected to achieve annual cost savings of more than $600 million, some of which would be reinvested in the company.

Pharmacia chief executive Fred Hassan, credited with improving profits at the drug company since he took over as chief executive in 1997, would be president and CEO of the combined company.

Monsanto chairman Robert Shapiro, long admired by analysts as a visionary but recently criticised by investors over Monsanto’s weak stock price, would be chairman. He plans to step down after 18 months, and Hassan would then assume the role of chairman.

The deal marks Monsanto’s second try at a so-called "merger of equals." Its agreement to merge with drug firm American Home Products Corp collapsed last summer, sending Monsanto’s share price plummeting. At the time, analysts said differing management styles sank the deal.

In a telephone interview, Shapiro said this merger would succeed.

"We have a management structure that is going to work," he said. "We have a CEO in Fred who has a proven record in the pharmaceutical industry and who is going to have a wonderful time taking advantage of the growth opportunities that both of these companies present together. Culturally and strategically and as a matter of business logic, these are two very compatible companies."

The corporate headquarters would be in Pharmacia’s US hometown of Peapack, New Jersey, which would also house the drug unit. The agribusiness division would remain in St Louis, where Monsanto is based.

Monsanto and Pharmacia said they planned to offer up to 19.9 per cent of the agribusiness unit in an initial public offering, and would operate it as a separate legal entity with its own stock and board of directors.

The agribusiness unit, while profitable, has been a drag on Monsanto’s share price because of a global downturn in the world farm economy and growing opposition to its genetically modified seeds. Last week, biotechnology opponents sued Monsanto, alleging it rushed the genetically modified crops to market without first ensuring they were safe for the environment and for human consumption.

However, the seeds are popular with US farmers, who planted them on more than half of the 1999 soybean crop and a third of the corn crop. Among the best-selling seeds are those that were modified to resist crop-eating pests or towithstand powerful herbicides.

Pharmacia’s Hassan said the combined company was committed to the agribusiness unit despite moves by other drug firms to exit similar businesses.

"We have looked at this business," he said. "It is a technology-intensive business (with a) very good research pipeline. We want to run it as an autonomous subsidiary through this partial IPO because we believe that a lot of value can be unlocked in this great business."