The agricultural products giant plans to pay $300 million to seal the deal with Emergent. Through the purchase, Monsanto will take on Emergent's status as the third-largest cotton seed company in the U.S. and India. In the U.S., that will put Monsanto in a better position to challenge the leading cotton-seed companies, Bayer's
Going forward, Monsanto expects Emergent to act as its retail face to cotton farmers. Using Emergent's brands as a showcase for Monsanto's biotechnology expertise in delivering beneficial traits to cotton seeds, Monsanto thinks it can add an additional 1% per year in the near term to Emergent's current 12% U.S. cotton-seed market share. Monsanto has used a similar model in its corn and soybean businesses to achieve impressive growth.
While the growth projections are reason to be upbeat, Monsanto is depleting its cash flow to pull off its purchases. The company upped its cash from operations for fiscal 2005 to $1.2 billion from $1.05 billion. Nevertheless, as a result of the Seminis and Emergent acquisitions, the firm expects free cash flow to come in at negative $900 million.
For the moment, though, Monsanto probably should be given the benefit of the doubt. The company's risk taking so far, namely its aggressive push into genetic traits, has paid off. Investors will no doubt keep a close eye on Monsanto to see how smoothly it integrates its new buys.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.