Calgene Inc., looking for cash, and Monsanto Co., seeking tostrengthen its position in agricultural biotechnology, have agreed to aproposed alliance in which Monsanto will acquire 49.9 percent ofCalgene in a complicated deal that includes cash, technology rightsand ownership of a Florida produce company.
Calgene Chairman and CEO Roger Salquist said the total deal isworth about $200 million to his company, which developed the FlavrSavr tomato and other genetically engineered plants, such as cottonand canola.
Davis, Calif.-based Calgene (NASDAQ:CGN) closed Wednesday at$8.25, up 50 cents, a 6 percent jump. Monsanto was up 50 cents,ending the day at $88.62.
Under terms of the proposed agreement, Monsanto has advancedCalgene $10 million, which is one-third of the $30 million in cash theSt. Louis, agricultural products and chemicals company agreed to payfor its equity stake. Monsanto will pay the other $20 million at theclosing of the deal, which is expected later this year.
In addition to the cash, Monsanto agreed to transfer its ownershipinterest in Gargiulo L.P., a Naples, Fla.-based grower and shipper ofproduce, to Calgene. Monsanto owns 49.9 percent of Gargiulo andhas the option to boost its stake to 82 percent in January 1996 as wellas another option to buyout the remainder of Gargiulo.
Monsanto declined to value its current stake in Gargiulo, but officialssaid it will cost Monsanto $32.1 million to increase its holdings to 82percent.
Monsanto also agreed to provide Calgene two "different" lines ofcredit, although neither company is saying how much money isinvolved or how the loans would be structured.
Analysts said Monsanto has agreed to lend $85 million over fouryears to Calgene.
A fourth part of the deal requires Monsanto to provide Calgene withrights to genetic research on delayed-ripening tomatoes and herbicidetolerant canola plants.
In return for the cash, the Gargiulo equity stake, the lines of creditand the technology, Calgene will issue Monsanto enough new sharesto give it a 49.9 percent equity interest. With 30.2 million sharesoutstanding, Calgene will have to issue another 30 million shares toMonsanto.
In saying the deal was worth $200 million, Salquist added the $30million in cash to the value of 100 percent ownership in Gargiuloplus the value of the rights to Monsanto technology and the lines ofcredit.
Monsanto officials declined to comment on the total price tag for theCalgene alliance. When asked if Calgene's court battle with EnzonBiochem Inc., of Farmingdale, N.Y., over gene suppression patentscould affect its deal, Monsanto officials said the company intends tocomplete the acquisition regardless of the dispute's outcome.
Sano Shimoda, an analyst with BioScience Securities Inc., of Orinda,Calif., estimated the deal was worth about $130 million to $180million, meaning Monsanto is paying between $4.50 to $6 a share.
Shimoda described the deal as a good one for Calgene. He said thecompany "was under tremendous pressure" to raise money beforeFriday, the end of the fiscal quarter.
Calgene's cash position apparently is being eroded by problems it isencountering in selling Flavr Savr tomatoes, which are geneticallymodified to delay ripening.
Shimoda suggested those problems would be resolved with Calgene'sacquisition of Gargiulo, whose business is growing, packing andshipping produce, especially tomatoes.
Gargiulo, Shimoda added, also owns a hybrid tomato seed company.
Andre Garnet, an analyst with A.G. Edwards & Sons Inc. in St.Louis, said that with the addition of Gargiulo, "Calgene overnightbecomes the largest tomato operation in North America."
In addition, Garnet observed, Gargiulo's good reputation for growingtomatoes should eliminate any negative connotations attached toCalgene's genetic alterations of the fruit.
Prior to the Monsanto deal, Calgene had been trying to raise $10million in a private placement in Europe. The company said it has notdecided if it will continue to pursue that financing.
George Dahlman, an analyst with Piper Jaffray Inc., of Minneapolis,said, "Clearly Calgene needed some financial help and everybody hasacknowledged they have tremendous intellectual properties. The mostlogical place for Calgene to end up was Monsanto."
Dahlman noted there are "a lot of overlaps and mutual interests"between Calgene and Monsanto, particularly in the area of tomatoes,cotton and plant oils.
Salquist said, "The roots of the transaction were in the companies'mutual respect of each other's science." He noted that the companieshad crossed-licensed various patents in the last several years.
"Why fight each other in these areas?" Salquist said. "It's been quiteclear for sometime that there's a need in the fresh produce market forpremium branded, better tasting products. Both of us are trying to getinto that market with various strategies." n
-- Charles Craig
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