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Monsanto Splices In Its Competitors' Best Traits

By Jacob Roche - Apr 21, 2013 at 7:30AM

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A series of cross-licensing deals leaves Monsanto flush with both market share and new technology to put to use in its own products.

Monsanto (MON) has been a busy bee lately. In March, Monsanto and DuPont (DD) settled multiple patent lawsuits against each other, instead agreeing to cross-license some of each other's technology. Last week, Monsanto inked another cross-license deal with Dow Chemical (DOW), and finally another with Bayer AG this week.

Hard to tell where one ends and the other begins
Under the DuPont deal, DuPont will now pay Monsanto $1.75 billion over 10 years to use Monsanto's Roundup-ready soybean genes, which are used in about 90% of the soybeans grown in the United States. DuPont will also get to combine these genes with its own genes to create soybeans with multiple traits, which was the basis of Monsanto's initial patent infringement suit. In return, aside from the $1.75 billion, DuPont will drop an antitrust lawsuit it had filed against Monsanto.

As for the Dow Chemical deal, Monsanto will get to license Dow's herbicide-resistant corn, and in return, Dow gets to use Monsanto's newest corn rootworm resistance technology, which is still in the pipeline.

It's a good thing Dow is getting the new version of the technology, because in 2011, researchers began noticing that the rootworms in some fields in Iowa had become resistant to Monsanto's corn, which has a gene that essentially makes the corn a pesticide for that specific pest. The EPA now believes the resistant rootworms have spread to five other states in the Midwest. The EPA also notes that the Monsanto-resistant rootworms are more likely to develop a resistance to SmartStax, a combination herbicide-pesticide-resistant seed. So overall, this is a major headache for Monsanto, and the company has a lot riding on the new third version of its rootworm technology.

Finally, Monsanto agreed to license its Roundup-ready soybean technology to Bayer for use in the U.S. and Canada, as well as insect-repellent soybeans for use in Brazil. Monsanto will gain access to Bayer's weed and insect-control technology, to evaluate for incorporation into future Monsanto products.

Green fields ahead
All these deals mean more companies using Monsanto's traits, but with 90% of the soybean market already, the bigger benefit is Monsanto's access to other companies' technology, which will hopefully help it stay ahead of herbicide and pesticide resistant "superweeds" and "superbugs."

Monsanto also recently raised its full-year earnings guidance for the second quarter in a row, now up to $4.40-$4.50 per share. At around $100 per share, that doesn't make Monsanto's stock particularly cheap, but earnings are growing fast -- net income grew by 22% in the recently ended quarter. This is one company to get on your Watchlist today, and stay updated with future developments as it continues to dominate the seed market.

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Stocks Mentioned

Monsanto Company Stock Quote
Monsanto Company
MON
Nutrien Stock Quote
Nutrien
POT
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DuPont de Nemours, Inc.
DOW
E. I. du Pont de Nemours and Company Stock Quote
E. I. du Pont de Nemours and Company
DD

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