New York Times, pg C1 (first business page)
August 5, 1999
Monsanto Faces Growing Skepticism on Two Fronts
By DAVID BARBOZACHICAGO -- After spending more than $8 billion in the past two years to acquire some of the world's largest seed companies and millions more to pioneer in the development of genetically engineered foods, Monsanto Co. is facing growing skepticism about its debt management and mounting resistance to some of its bio-engineered crops.
The company's problems are manifold: despite optimistic "buy" recommendations from Wall Street analysts and blockbuster sales of its arthritis drug Celebrex, the best-selling drug launch in history, Monsanto's stock price has been languishing for months. Its shares closed Wednesday at $41.5625, up $1.4375.
Among the reasons: agricultural experts and anti-trust lawyers are beginning to raise concerns about whether Monsanto's buying spree has concentrated too much of the world's seed business in one company. Farmers, academics and environmental activists are questioning the safety and efficacy of genetically modified crops.
The most stunning setback for Monsanto came this year in Europe, where opposition to what some dubbed "Frankenstein Foods" led the European Union to slow approval of genetically modified crops. As a result, some of the world's largest food processors say they will not accept genetically modified crops for export.
Under pressure to improve its balance sheet and revive its stock price, Monsanto, which is based in St. Louis, said last November that it would lay off about 9 percent of its workforce and issue $4 billion in new debt; a month ago, the company put its Nutrasweet division up for sale as a way to cut $6.5 billion in debt, a debt level that at 60 percent of the company's capitalization is twice as high as rival companies, according to Morgan Stanley Dean Witter & Co.
To help finance its transformation from a chemical to a "life sciences company," Monsanto executives have held merger talks over the past year with DuPont Co. Those talks were confirmed last month by a federal filing by Pioneer Hi-Bred Inc., the nation's largest seed company, which was acquired last March by DuPont.
Monsanto executives said last week that they would not rule out a merger, but brushed aside suggestions that a merger deal was necessary or imminent.
Whether or not Monsanto finds a partner, the company needs to improve its standing with investors and the public. The company would like to persuade consumers that genetically modified foods are not just safe but critical to feeding a growing population by boosting crop yields while reducing waste and the need for harmful pesticides, executives say.
In recent weeks, executives at DuPont say that Shapiro of Monsanto has had discussions with Charles O. Holliday, the chief executive at DuPont, about joining forces to hold public meetings as part of an effort to shore up the acceptability of genetically-modified crops.
Monsanto executives are trying to convince investors that as the company transforms itself into a "life sciences" firm, it will double its earnings in a few years.
Robert B. Shapiro, the chief executive at Monsanto, says he likes the challenges the company faces. Monsanto is now the number two player in the seed market, he said, and genetically modified crops are growing all over the country.
"This is the single most successful introduction of technology in the history of agriculture including the plow," Shapiro said in a telephone interview last week. "The fundamental question investors are asking me: Is the public's acceptance going to slow down the commercialization? And that's a perfectly good question. The only appropriate answer is Let's see."
In Europe, however, consumers have reacted negatively to genetically engineered foods. Buoyed by the media storm in Europe, activists in the U.S. have stepped up their assault on biotechnology in recent months, with groups like Greenpeace painting an ugly picture of Monsanto and the industry. One Internet web site has even taken to calling the company "Mutanto."
The U.S. Department of Agriculture, which has generally supported biotechnology, announced last month that it was setting up an independent scientific review of its biotech approval process, largely to shore up public confidence and insure the safety of consumers.
Jeremy Rifkin, the environmental activist, says Monsanto and other biotechnology companies have failed to address concerns about the environmental impact of such crops, particularly the risk that altering the genetic makeup of plants could accidentally foster genetically altered weeds and pests that could be impossible to thwart.
"Agricultural biotechnology is unraveling, and Monsanto has staked its future on biotech," said Rifkin, author of The Biotech Century. "There are a lot of problems and there will be lots of lawsuits."
Two of the nation's most prominent anti-trust lawyers, David Boies who is leading the Justice Department's prosecution of Microsoft and Michael Hausfeld, a Washington lawyer involved in Holocaust-related suits, say they are considering representing farmers in a class-action anti-trust suit against Monsanto and other biotechnology companies. The attorneys say that the companies that dominate the seed business are using technology agreements, legal contracts and alliances to limit the choices available to farmers and push bio-engineered seeds in an anti-competitive manner.
The problems that beset Monsanto are perhaps a lesson in how perilous it can be on the front lines of a revolution in the food and agriculture industry.
Monsanto and other biotechnology companies stand to reap billions of dollars in profits if genetically-engineered crops become a staple of the world's diet. But while some of the world's largest biotechnology and pharmaceutical companies, such as Rhone-Poulenc and DuPont, prepare a robust pipeline of future products, it is Monsanto that has been virtually alone in the sometimes harsh public spotlight.
The company concedes that it may have been naive in trying to win approval in Europe, but eventually, scientific proof should win over consumers, Shapiro said.
U.S. regulators have approved genetically modified crops, and American farmers have been huge backers of bio-engineered crops that resist pests and cut down on spraying and equipment costs. Monsanto estimates that more than 70 million acres have been planted with the company's biotech seeds. Many Wall Street analysts believe the company is primed for success.
"Driven by their pharmaceutical and ag biotech earnings, we think the company is poised for a dramatic earnings runup," said Mark Wiltamuth, an analyst at Morgan Stanley.
Although Monsanto's second quarter earnings were largely driven by Celebrex, the arthritis drug, and sales of Roundup herbicide, a chemical, the company says its biotechnology products are selling well, even in a depressed market.
The question is: will farmers continue to purchase genetically-engineered seeds if they sense closed export markets?
"Most growers are seeing benefits to biotechnology," said Kevin Aandahl, a spokesman for the National Crow Growers Association. "The concerns are now about the market ability and acceptance of those grains. There's no question that there are concerns."