It wasn't a big surprise since Monsanto
Lilly was a good choice to purchase the synthetically derived drug. It's been selling the drug for Monsanto outside the U.S. for a decade. It'll inherit the plant that makes the drug and the U.S. sales force after the deal closes later this year.
For Monsanto, the divestiture looks like an excellent move. Cow hormones have come under increasing scrutiny lately with companies like Dean Foods
There's also the issue of patents. The U.S. patent on Posilac expires this year, although there are patents on the manufacture of the product which may make it hard for other companies with animal health divisions, like Pfizer
Most importantly, the move will allow Monsanto to concentrate efforts on its fast-growing seed and chemical business. Last quarter, seed sales were up 20% year over year and sales of herbicides, including Roundup, jumped 54%. Monsanto doesn't break out sales of Posilac, but sales of "other agricultural productivity products" were flat last quarter, and up less than 6% over the first three fiscal quarters. It doesn't take an MBA to know which area the company should be focusing on.
I really like Monsanto, especially for its long-term outlook. My only concern has been the high expectations of the agriculture sector that are built into its stock. Its shares have fallen about 15% since their peak in June. If they get any lower, you may see me turning in my jester cap for a pair of bull horns.
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