St. Louis, Missouri
February 17, 2005
Management increases growth
projections; provides updated earnings-per-share and cash flow
guidance
Monsanto Company (NYSE:
MON) announced today it signed a definitive agreement to acquire
Emergent Genetics,
Inc., for $300 million. Monsanto intends to finance the
transaction with cash and commercial paper. In conjunction with
the acquisition announcement, the company is also updating its
fiscal year 2005 ongoing earnings-per-share (EPS) and free cash
flow guidance.
The addition
of the Emergent Genetics brands completes a strategic cotton
germplasm and traits platform modeled on the company’s leading
corn and soybean strategy, according to Hugh Grant, chairman,
president and chief executive officer of Monsanto.
“We have a
strong base business built on seeds and traits, and the addition
of Emergent is expected to give us a complementary cotton
platform that, with the planned acquisition of Seminis, we
believe will allow us to accelerate our growth,” said Grant.
“This is our second major strategic acquisition recently and now
we believe we have the elements we need to achieve our goals.
Over the next year we’ll focus on three areas: execution of our
business plans, assimilation of these new businesses, and
replenishing our balance sheet.”
Through its
Stoneville and NexGen brands, Emergent Genetics is the third
largest cotton seed company in the United States, holding
approximately 12 percent of the U.S. cotton seed market.
“Just as our
DEKALB and Asgrow brands do in corn and soybeans, we believe the
Stoneville and NexGen brands will provide a powerful showcase of
our breeding advances and biotechnology traits in the U.S.
cotton seed market,” said Grant. “Coupled with the germplasm
development and licensing in our Cotton States business, our
cotton business can mirror the successful model we’ve
established through branded and licensed channels in corn and
soybeans.”
Under the
direction of Chief Executives Mark Wong and Sam Dryden, Emergent
has established itself as a leading company in the cotton
industry. In addition to the U.S. business, Emergent also has
two leading cotton seed brands in India and a solid presence in
several other smaller cotton-growing markets.
“We’re very
proud of the Emergent business and the leadership position that
our organization has been able to build in the U.S. and Indian
cotton industry,” said Wong. “The addition of Emergent to
Monsanto is a combination that will take Monsanto’s cotton
business to the next level, helping the business grow while at
the same time bringing new technology and products that will
truly benefit the cotton industry.”
Building from
Emergent’s strong business foundation, Monsanto will work to
apply its biotechnology traits and molecular breeding
capabilities to accelerate the speed at which new stacked-trait
and second-generation products reach cotton producers, according
to Grant.
“This
combination will pair some of the terrific biotechnology and
breeding advances happening at Monsanto with the backbone of
proven cotton brands,” said Grant. “This will be a nice
complement to our continued commitment to broadly license
biotechnology traits, and the bottom line for cotton producers
is we believe we’ll be able to move the most innovative
technology into more stacked-trait products faster, while still
ensuring broad choices in a competitive market.”
The
acquisition is subject to regulatory approvals, and is expected
to close as soon as practical. The deal does not include
Emergent Vegetable A/S, which is based in Denmark.
Updated
Fiscal Year 2005 Guidance
In
conjunction with the acquisition announcement, Monsanto
management also announced it is updating fiscal-year guidance
for EPS on the strength of its seeds and traits business.
Monsanto now expects EPS on an ongoing business basis to be
toward the upper end of the $1.85 to $2.00 range outlined in its
previous guidance. On an as-reported basis, the company
adjusted expected EPS in the range of $0.73 to $0.91 based on
the purchase accounting adjustment related to this transaction.
(See reconciliation table with this news release.)
The company
expects its planned acquisitions of Seminis, Inc., and Emergent
to be accretive to EPS in fiscal year 2006. Monsanto also
expects accelerated ongoing EPS growth of 15 percent from fiscal
year 2005 to 2006 and an additional 15 percent from fiscal year
2006 to 2007. The company’s previous guidance projected a
compounded annual growth rate of 10 percent in fiscal year 2006.
The company
also adjusted its free cash flow guidance for fiscal year 2005.
Based on the strong business performance, Monsanto now expects
an increase of cash from operations, projected to be $1,200
million, compared with $1,050 million in the company’s previous
guidance. Including free cash to be used for the Seminis and
Emergent purchases, the company now expects net cash required by
investing activities to be $2,100 million, compared to net cash
required by investing activities of $1,800 million in the
company’s earlier fiscal year 2005 guidance. As a result, the
company now expects free cash flow to be negative $900 million
for the fiscal year, compared with the previous estimate of
negative $750 million following the announcement of the Seminis
acquisition. (See reconciliation table with this news release.)
Monsanto Company is a leading
global provider of technology-based solutions and agricultural
products that improve farm productivity and food quality.
DEKALB
and Asgrow are registered trademarks of Monsanto Company and its
wholly owned subsidiaries. All other trademarks are the
property of their respective owners.
RECONCILIATIONS OF NON-GAAP
FINANCIAL MEASURES
The
presentations of ongoing earnings per share (EPS) and free cash
flow are not intended to replace net income, cash flows,
financial position or comprehensive income, and they are not
measures of financial performance as determined in accordance
with Generally Accepted Accounting Principles (GAAP) in the
United States. The following tables reconcile ongoing EPS and
free cash flow to the respective most directly comparable
financial measure calculated in accordance with GAAP.
Reconciliation of EPS to ongoing EPS: Ongoing EPS is
calculated excluding certain after-tax items which Monsanto does
not consider part of ongoing operations.
|
Fiscal Year 2005
Target |
|
|
|
|
|
Diluted Earnings per Share |
$0.73 – $0.91 |
|
Estimated purchase accounting adjustments |
$0.78 – $0.85 |
|
Tax benefit on loss from sale of European wheat
and barley business |
$(0.39) |
|
Solutia-related charge |
$0.68 |
|
Diluted Earnings per Share from Ongoing Business |
$1.85 – $2.00 |
|
Reconciliation of free cash flow:
Free cash flow represents the total of cash flows from
operations and investing activities. With respect to the
projected free cash flow guidance for 2005, Monsanto does not
include any estimates or projections of net cash provided by
(required) by financing activities because in order to prepare
any such estimate or projection, Monsanto would need to rely on
market factors and conditions that are outside of its control.
|
Fiscal Year 2005
Target (in millions) |
Net Cash Provided by Operations |
$1,200 |
Net Cash Required by Investing Activities
|
$(2,100) |
Free Cash Flow |
$(900) |
Net Cash Provided (Required) by Financing Activities |
N/A |
Net Increase (Decrease) in Cash and Cash Equivalents |
N/A |
|