Second Time the Charm?

If at first you don't succeed, fall back, regroup, and try again later. Some eight years after an ill-fated initial merger attempt, Monsanto (NYSE: MON  ) is once again trying to buy cottonseed specialist Delta and Pine Land (NYSE: DLP  ) in an all-cash $1.5 billion proposed merger.

The first time around, the U.S. government apparently made demands upon Monsanto that the company felt were commercially untenable, leading it to abandon the merger. Delta and Pine Land contended that Monsanto had not done all it could to see the deal through, and litigation has lingered between the two companies ever since. (It hasn't stopped them from continuing some product-license business, though.)

So what's different now? Well, Monsanto said it's willing to divest the Stoneville cottonseed business, which might signal a wider willingness to compromise to get the deal done. What's more, the development of seed rivals like DuPont (NYSE: DD  ) , Bayer (NYSE: BAY  ) , Sygenta (NYSE: SYT  ) , and UAP Holding (Nasdaq: UAPH  ) may make it easier to argue that the combination would be less of a threat to competition than before.

To some extent, the deal makes sense for Monsanto, combining Delta germplasm with Monsanto genetic traits in a reasonably lucrative niche market. It's not without some risk, though. In addition to government antitrust worries, I have my own concerns about the U.S. cotton business. Cotton is a heavily subsidized industry, and those subsidies are a sticking point both in international trade negotiations and domestic budget policy negotiations. If the subsidies ever change meaningfully, it could affect both domestic cotton acreage and the short-term value of the Delta business.

In the meantime, though, I remain a Monsanto fan. Genetically modified foods may still be controversial, but so too were pasteurization and water fluoridation in their day. Given the ongoing need to squeeze more yield out of less space, there should be a compelling and continuing argument for better seeds from the likes of Monsanto.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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