The agricultural biotechnology outfit disclosed early Monday that it will buy privately held Seminis Inc., the world's largest fruit and vegetable seed developer, in a $1.4 billion transaction. Monsanto will pay $1 billion in cash for Seminis as well as assume $400 million in debt.
Evidently, the price that Monsanto is paying for Seminis is what is raising objections. As for Seminis' financial performance, the firm posted sales of $526 million in fiscal 2004 and booked a net loss of $16.3 million. Still, the Oxnard, California, company's potential for growth looks promising. Revenue grew 10.1% in fiscal 2004 from 2003, while losses were nearly cut in half. Furthermore, its fiscal 2004 loss reflects $45 million in non-cash charges.
For Monsanto, the deal is not expected to affect fiscal 2005 earnings, probably because the company does not expect the purchase to close until its fiscal third quarter, which ends in May. Free cash flow for 2005, however, is now projected to be negative $750 million versus a previous projection of positive $600 million. Nevertheless, the near-term dent in free cash flow may be well worth the benefit in the long run.
Monsanto's concentration on selling genetically altered seeds has already yielded impressive results. According to Reuters, the firm controls up to one-third of the U.S. corn seed market, if its licensing agreements covering germplasm and technology traits are taken into account. Meanwhile, the company is making progress in China and protecting its turf in South America.
Its competitors, including Bayer
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.