By Lisa Seachrist

Washington Editor

WASHINGTON — American Home Products Corp. (AHP) has agreed to buy Monsanto Co. for $33 billion in stock, creating a yet-to-be-named company that will have products including pharmaceuticals, vitamins, biotech drugs and agricultural products, and over-the-counter drugs.

The deal, which the companies are calling a merger of equals, would create a life sciences leviathan with a market capitalization of $96 billion and revenues of approximately $23 billion in 1998.

"Both companies are committed to cutting-edge science," said Doug Petkus, spokesman for Madison, N.J.-based AHP. "This merger is a foundation for synergy and growth. It provides the opportunity to have the resources to bring new technologies to the global market."

Under the terms of the agreement, which was unanimously approved by the boards of both companies, AHP shareowners will retain their shares while Monsanto stockholders will receive 1.15 shares in the new company for each share that they currently own. Monsanto stockholders will own approximately 35 percent of the new company.

Monsanto chairman and CEO Robert Shapiro and AHP chairman and CEO John Stafford will serve as co-chairs and co-CEO's for the new company. The new board of directors will consist of 22 members equally split between St. Louis-based Monsanto and AHP.

The companies estimate that within three years, they will realize cost savings from synergies and cost avoidance of $1.25 billion and $1.5 billion per year.

The merger comes several months after merger talks between AHP and Britain's SmithKline Beecham plc, of London, failed when SmithKline began pursuing a merger instead with Glaxo Wellcome, also of London. Those talks also failed.

"The AHP-Monsanto merger adds to the critical mass of the companies' pharmaceutical business," said Kenneth Nover, an analyst with A.G. Edwards & Sons Inc., in St. Louis. "The pharmaceutical business is the key to this deal. One of the more interesting aspects is the cost avoidance."

Nover pointed out Monsanto brings to the deal a pipeline that may yield three products over the next two years: a COX 2 inhibitor that provides pain relief without gastrointestinal side effects, a GPIIb-GPIIIa receptor inhibitor for the treatment of heart attack and angina, and a white-blood-cell growth stimulator. In return, Monsanto gets access to AHP's sales and marketing infrastructure, which should significantly reduce the costs of bringing the drugs to market.

Earnings Expected To Rise After 2000

"Biotechnology is a contributing factor for sure," Nover said. "AHP has a significant stake in biotech with Genetics Institute [of Cambridge, Mass.] and Immunex. Corp. [of Seattle]. Monsanto will be gaining access to those biotech tools."

Assuming the deal closes by the end of this year, the companies expect that earnings per share in the new company will be diluted 15 percent in the first year and by a lesser amount in the year 2000. Thereafter, they expect earnings to increase.

The new company's corporate headquarters will be in Madison, N.J. The agricultural business will be headquartered in St. Louis, with the pharmaceutical arm in Radnor, Pa., and the consumer health care and nutrition business based in Chicago.

Monsanto's stock (NYSE:MTC) closed Monday at $54.50, down $0.875 on the news. AHP's stock (NYSE:AHP) ended the day at $49.25, up $0.937. *