June 28, 2006
Monsanto (NYSE: MON ) has made its fair share of major acquisitions over the past couple of years, including the purchase of cotton seed company Emergent Genetics and fruit and vegetable seed outfit Seminis. But the agricultural technology giant has also been quietly making much smaller purchases that seem likely to deliver important returns for the company as demand for corn and soybeans ramps up.
Monsanto disclosed today that its American Seeds, Inc., unit has added five more small companies in different communities in Illinois, Indiana, and Iowa. The overall price tag for the transaction was relatively small at about $77 million, and according to Monsanto, the five companies together control just 1.4% of U.S. corn seed sales and only 2% of U.S. soybean sales.
However, the latest acquisitions represent the fourth time since March 2005 that Monsanto has added local brands to American Seeds' portfolio. Through all of these deals, Monsanto spent a total of $178 million to pick up 13 brands and add control of 3.8% of U.S. corn seed sales and 2.4% of soybean sales.
Monsanto frames these deals as a way for it to provide its technologies to underserved geographies. The transactions are also a savvy "stealth" sales and marketing strategy from the company. The company acquires well-established and accepted local brands and continues to sell under these labels, while the underlying product becomes all Monsanto.
The timing of the deals looks propitious, especially with respect to the corn seed market. With everyone from the federal government to Ford (NYSE: F ) and General Motors (NYSE: GM ) pushing ethanol usage, and ADM (NYSE: ADM ) , VeraSun (NYSE: VSE ) , and others ramping up production of the alternative fuel, corn, the primary raw material in ethanol production, is going to be in high demand in the coming years. Monsanto itself expects that the demand for corn used in ethanol will nearly double in a few years. If current trends hold up, Monsanto's small purchases should translate into big payoffs.
For related content:
Check out our suite of investing newsletters with a 30-day free trial.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.