December, 1999
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Monsanto pays GM price

Controversial foods division to be spun off as pharmaceuticals groups merge

December 21
The Guardian

Monsanto, the US biotechnology company, bowed to consumer and shareholder pressure yesterday and announced it would spin off its controversial agricultural chemical business as part of a merger with Pharmacia & Upjohn, the drugs company.

But such is the deep concern over the genetically modified foods business that the intention to keep a controlling stake in the division saw shares in both Monsanto and Pharmacia fall more than 10%  following the announcement.

The all-share merger, which offered no premium to either group's latest share price, underlines how a technology promoted by Monsanto as a revolutionary way of revitalizing the struggling agricultural industry had become an albatross for the group. Tim Ghriskey, senior fund manager for Dreyfus Corporation, said yesterday: "The shares are still tainted by the agri-chemical side. Everybody was hoping it would not be part of the deal."

As part of the merger, the new group plans to spin off up to 20% of the GM business. Analysts believe the sell-off will value the GM division at not much more than one year's sales, less than $4bn (#2.5bn), because of continuing doubts about its future. Fred Hassan, chief executive of P&U, sought to ease fears about the remaining 80% stake by saying that GM foods were "based on very solid science".

However, he admitted that an "education" campaign was needed to overcome the "PR problem" associated with the industry. Genetically modifying products were "actually... good for the environment". Mr Hassan will become chief executive of the combined group following the merger.

Robert Shapiro, Monsanto's chief executive, will become non-executive chairman of the merged group for 18 months. In a presentation to analysts yesterday, the two men sought to focus on the benefits to be realised. The deal is expected to create the world's eleventh-largest drugs company with a market value of more than $50bn and sales of about $17bn.

Mr Shapiro said: "The new company is being created from two rapidly growing organizations with strong global capabilities. It is a merger driven from strength, and will have the appropriate scale and resources to capture the full value of its growth potential."

The new group, which has yet to be named, aims to cut costs by about $600m a year as a result of the deal, largely by sharing research and development costs of some $2bn a year and merging sales operations. The companies have developed several well-known drugs and health care products including Rogaine, the hair growth treatment, and Nicoret, the anti-smoking product. Barbara Ryan, pharmaceuticals analyst at Deutsche Bank, described the "underwhelming" deal as "a defensive move by both companies to stay in the game".

The pharmaceuticals industry is in the throes of a merger frenzy as companies rush to cut the heavy costs associated with new drugs. Monsanto was close to merging with American Home Products last year, but the deal was called off, reportedly because of managerial differences.

AHP is now fighting Pfizer for control of Warner-Lambert, another US rival. One analyst pointed out that yesterday's deal valued Monsanto at about $13 a share less than the value it could have achieved if the mooted merger with AHP had gone ahead, before consumer concerns over GM food gained momentum.

Mr Shapiro admitted yesterday that his company's share price had been hit by "a different view about agricultural biotech" over the past 12 months.

Monsanto boss's vision now confronts reality

December 21
Wall Street Journal

Monsanto Co. Chief Executive Robert B. Shapiro gazed into the future four years ago and envisioned his company as a biotechnology factory on the cutting edge, churning out novel foods and medicines.

Monsanto could invent crops to lower people's cholesterol and prevent nightblindness in India. It could alter food crops' characteristics based on science's growing understanding of human nutritional needs. It could help nourish the poor in developing nations. And it could modify plants to produce medicines such as blood substitutes, promising disease-free supplies.

He saw this project as environmentally enlightened, using terms like "sustainable agriculture" and "holistic solutions." Also, not incidentally, as one that would serve shareholders well in the age of technology. 

Billions of dollars later, that concept of a unified "life sciences" company - using technology to improve both medicines and foods - has become an affliction itself for Monsanto. The crop-biotechnology half of the program has grown so controversial that Monsanto has agreed to a deal that is likely not only to push biotech to the back burner, but also to cost Monsanto its independence. And investors are reacting harshly. 

Monsanto's agreement to combine with Pharmacia & Upjohn Inc. is billed as a merger of equals, but it leaves the Pharmacia side with the upper hand. Pharmacia's 54-year-old chief executive, Fred Hassan, is to run the combined company. He plans to operate from Pharmacia's headquarters in Peapack, N.J., not from Monsanto's base in St. Louis. Mr. Shapiro, 61, is expected to become nonexecutive chairman and retire after 18 months.

That agricultural business that Mr. Shapiro has championed will become a separate business, and as much as 19.9% of it will be sold off. While many projects will continue, and Mr. Hassan has expressed support for the business, it isn't likely to have anywhere near the priority it had. Mr. Hassan's chief focus is Monsanto's drug business, G.D. Searle, whose Celebrex arthritis medicine is the hottest-selling new drug in the U.S. this year.

In retrospect, some former colleagues say Mr. Shapiro was so taken with his vision of a biological revolution that he ignored the paramount issue of consumer attitudes. Surrounded by a handful of like-minded biotechnology enthusiasts within the company, known as Friends of Bob, he had few voices in his inner circle providing a reality check.

Mr. Shapiro had huddled with environmentalists to plan his program, and he saw the results it would produce as an environmental good: less need for pesticides, weed control without disturbing the soil so much, and greater food production from less land. Yet it is environmentalists, fearful of unintended ecological consequences, who have organized this year's fierce opposition to genetically modified food.

And for all of Mr. Shapiro's futuristic thinking about genetic engineering of plants, he overlooked a vital issue: Crop biotechnology would trust Monsanto's fortunes to customers the company knew little about: grocery shoppers.

"We did proceed on the basis of our confidence in the technology," Mr. Shapiro says. "And we saw our products as great boons both to farmers and to the environment. I guess we naively thought that the rest of the world would look at the information and come to the same conclusion." 

Monsanto initially had much success with biotechnology. American farmers embraced its new seeds, sowing vast reaches of the Midwest to crops made hardier through genetics. But another Monsanto invention almost ready for marketing - soybean and canola modified to make healthier cooking oil - isn't generating as much excitement from food companies.

And recently two Monsanto competitors in Europe decided they are getting out. Swiss pharmaceutical giant Novartis AG and Anglo-Swiss drug maker AstraZeneca PLC plan to combine their agricultural units into one business and spin it off, effectively washing their hands of crop biotechnology. 

They say farms and pharma turn out to have less in common than hoped. The lab equipment for reading genes of humans and crops is largely the same, but the marketing issues are far different.

The public accepts biotechnology in medicine because it sees a clear benefit: saving lives. But about all crop biotechnology can do for now is make plants that are easier and cheaper for farmers to grow. While that's great for farmers, it's hardly an appeal to middle-class consumers, particularly when they are being cautioned by opponents that the foods' safety hasn't been proved.

Before crop biotech became so controversial, Mr. Shapiro could make a better deal for Monsanto in the merger game. American Home Products Corp., though roughly twice Monsanto's size in revenue and market value, offered 18 months ago to make Mr. Shapiro co-CEO in a merger. The deal, finally doomed by personality conflicts, would have valued the company at $35.1 billion, far more than the deal with Pharmacia does.

Mr. Shapiro took over at Monsanto four years ago, and few chief executives have changed an old industrial company more quickly, on the force of an idea, than he did. Arriving via Monsanto's 1985 acquisition of Searle, where he headed the NutraSweet artificial-sweetener business, he became head of the agricultural unit and then CEO in 1995. 

Mr. Shapiro represented a major change - from old school to New Age. He succeeded Richard J. Mahoney, who had run the 95-year-old commodity-chemicals company almost as if it were reform school. When senior staffers made presentations before Mr. Mahoney, they were sometimes timed by green, yellow and red lights, and expected to stop in midsentence when the red light flashed.

Mr. Shapiro (who is trained as a lawyer, not a scientist) was professorial and informal, wearing vivid sweaters and baggy corduroys to work, and often no tie. "I'm Bob Shapiro, and I'm in charge of the  dress code," he joked at an early meeting with employees. Initially he turned down the offer of a company chauffeur, saying, "I learned how to drive a long time ago."

The new CEO convened a forum of 500 Monsanto people from around the world, where, clad in a sweater-vest decorated with little quilted cats, he laid out his vision of the future. He had assembled not just senior managers but also representatives from production plants, clerks and bosses alike. 

Environmentalists such as Peter Raven, director of the Missouri Botanical Garden, spoke. So did Ken Dychtwald, a guru of the "Age Wave" movement who focuses on how the growing size of the elderly population affects society.

Copies of Mr. Shapiro's remarks aren't available, but he retraced them in a later interview in the Harvard Business Review. "Without radical change," he said, the impending doubling of global population would someday mean an "unthinkable" world of "mass migrations and environmental degradation on an unimaginable scale." His remedy: designer crops that need less land and yield more - and more-nutritious - food. "The market is going to want sustainable systems," he said, "and if Monsanto provides them, we will do quite well for ourselves and our shareowners."

By all accounts, he riveted the crowd at his forum. A loyal following ensued, one that some have called almost a personality cult. At a dinner in Chicago's Field Museum after the conference, one enamored employee hung her name tag around Mr. Shapiro's neck. Soon, others were doing likewise.

Within months, project teams on "sustainability" - focusing on topics like world hunger and global water supplies - started up within Monsanto.

Preaching that Monsanto needed to become an "ecosystem" capable of making decisions quickly, Mr. Shapiro ordered executives out of big offices and into cubicles. They were linked in a novel organizational structure called "two in a box" that forced managers from different departments to work together.

The business Monsanto had pursued for close to a century, commodity chemicals, was spun off. Instead, the company invested heavily in the pharmaceutical half of the life-sciences equation Mr. Shapiro envisioned. And in the agricultural half, it went all-out: buying seed companies and gene technology and ultimately spending several billion dollars to build a crop-biotech empire.

Mr. Shapiro approved paying huge premiums to buy seed producers, figuring Monsanto needed them to get its genes into the hands of farmers. Two years ago, the company paid $1 billion for a family-owned seed company in Iowa that had roughly $50 million in yearly revenue.

As a marketer, Monsanto, when it made commodity chemicals such as carpet fiber, was accustomed to staying in the background. Mr. Shapiro evidently didn't have a clear plan to get public acceptance of bio-engineered food. 

"He didn't realize that he had to start thinking like a food executive," says Bill Jorgenson, managing principal of SJH & Co., a food consultant in Danvers, Mass.

The first genetically modified seeds Monsanto brought to the world didn't have anything to do with healthier food or cheaper drugs, the vision that inspired Mr. Shapiro's followers. Instead, they were products created in the laboratory to sell more of a Monsanto weedkiller called Roundup. 

The potent herbicide will kill almost anything green. In 1996, Monsanto began selling seeds for soybean plants it had genetically altered so they could survive a dousing with Roundup. This made it far easier for farmers to get rid of weeds. No longer would they have to drive their tractors across soybean fields several times every year rooting out the weeds mechanically. They lined up to plant Monsanto's "Roundup-ready soybeans" - and buy more Roundup.

As it turned out, tinkering first with soybeans, of all crops, was a bad idea from a consumer standpoint. A lot of American soybeans go to Britain, where food calamities such as mad-cow disease had made consumers extremely wary of any food seen as unnatural. Some consumers felt trapped, because soybeans are ubiquitous in British grocery stores as an ingredient in foods ranging from cooking oil to candy.

Europeans began claiming a right to know whether food contained ingredients from genetically modified plants. It became such a torrid issue that the European Union imposed mandatory labels on some foods with such ingredients. And soon, British grocery chains were racing to advertise house brands as "GMO-free" - no genetically modified organisms. 

Mr. Shapiro wishes now that, instead of herbicide-resistant soybeans, he had entered the marketplace first with a crop genetically modified to make healthier cooking oil or vitamin-enriched food. "Certainly if our first products had been something that had health benefits, it would have been easier to make our case. Then many consumers would have seen benefits, like has happened in the pharmaceutical world," where biotechnology isn't such a cause of opposition.

Early this summer, the efforts of European environmental groups fervently opposed to genetically modified foods began to raise awareness of them in the U.S. The activists argued that the crops risked inadvertently unleashing genes in the environment, with unpredictable effects.

Regulators such as the Food and Drug Administration hadn't interfered with genetically modified crops, seeing no reason to think they weren't safe to eat. But surveys now show that the vast majority of Americans want such foods labeled. A labeling bill has been introduced in Congress, and the FDA has held hearings on the matter.

So now, after three years of surging sales of modified seeds by Monsanto, Novartis and others, the business has hit a hitch. The industry now expects sales to farmers to flatten or drop next year. While few Midwestern farmers share the environmentalists' concerns, they fret that the crops won't be exportable to Europe or that food companies will stop buying them to avoid the issue.

Mr. Shapiro's dream goes far beyond soybeans and corn (which is made resistant to insects so it doesn't need to be sprayed with pesticide).

Monsanto has also been trying to genetically engineer colored cotton that would reduce the need for synthetic dyes. For the developing world, it is rigging canola and mustard plants to make nutrients such as beta-carotene, a vitamin A source; the plants' oil could be cheaply added to spreads and other foods. Monsanto is also trying to engineer soybeans whose texture and flavor mimic meat, making soy a more pleasing source of protein.

Impressive, some say, but will it sell? "You don't build a business around research - you build it around consumers," says Charles Arntzen, president of Boyce Thompson Institute for Plant Research at Cornell University. To him, "Shapiro is brilliant, but he is wrong." 

And how does Mr. Shapiro feel, seeing a vision he figured could serve both humanity and shareholders come under such attack - its products labeled "Frankenfoods" and the company demonized as "Monsatan"?

He leaves no doubt of how misguided he thinks the environmental activists opposing genetically modified food are, and he even suspects short-seller investors, those who profit when a stock declines, might have some role in the horrible press Monsanto has been getting. As for himself, though, he simply says, "Everybody likes to see themselves as Jimmy Stewart: In the end everyone picks you on their shoulders and carries you around the room and sings he's a jolly good fellow. But this is the real world. There are people who have concerns about the technology and are expressing them."

Mr. Shapiro says he is sure that farm biotech will eventually be recognized as "a very important tool in feeding people and moving toward sustainable agriculture." But in the meantime, he adds, "Democracy is a pretty robust process."

Rocky outlook for genetically engineered crops

December 20
New York Times

Agribusiness leaders are as confident as ever that the need to feed a growing world population makes it both essential and inevitable that biotechnology will play a central role in 21st-century farming. But for now it looks like the industry may be pulled over by consumers and fined by investors for recklessly speeding toward such a future.

Sales of genetically engineered crops soared in 1999, but a sharp slowdown in growth, if not an actual decline, seems likely in 2000, and even industry optimists are saying it may take several years to get rolling again. Crop surpluses, which undermine farmers' willingness to pay for new technology, trade tensions, and antitrust concerns have all contributed to the uncertain outlook. But the biggest jolt to the visions of the multinational giants that dominate agribusiness have come from a surge in consumer fears about the safety of the novel crops.

It has made no difference that regulators and major food companies agreed with the industry that there was scant evidence of any significant human health hazard. Nor has it mattered that most researchers contend that critics have wildly exaggerated evidence that biotechnology is likely to create superweeds or widespread destruction of beneficial insects like Monarch butterflies.

Over the last year, governments and the industry's biggest customers began deciding it was better to retreat than to ignore negative public sentiment. The backlash was strongest in Europe, where supermarket chains took foods containing oil from genetically modified corn and soybeans off their shelves, and regulators tabled applications to plant new genetically altered strains of beets and canola despite the opinions of their own science advisers that the crops were safe.

Some of the biggest drug, food and chemical giants have already retreated from the once popular model of becoming "life sciences" companies with strong footings in every sector affected by biotechnology. Early this month, AstraZeneca P.L.C. of Britain and Novartis A.G. of Switzerland, announced plans to spin off and then merge their agricultural businesses into a new company to be called Syngenta. 

"We went three steps forward in recent years, but we are now taking two steps back," said Sano M. Shimoda, founder of BioScience Securities, a research firm based in Orinda, Calif., that concentrates on agricultural biotechnology. "I don't think we've seen the worst of it yet."

The biggest business beneficiaries of the biotechnology backlash may be the manufacturers of the traditional agrichemicals that have been losing market share and money while battling to slow the move of farmers to new crops that are devised to work best with just one herbicide or, in some cases, to eliminate the need for certain insecticides. Some chemical giants like DuPont, Dow Chemical and Aventis have major commitments to biotechnology as well, but others, like the struggling American Cyanamid pesticides business of American Home Products, have little to lose from a setback for biotechnology.

One development many foresee for next year is the adoption in many countries -- perhaps even the United States -- of labeling standards for food containing genetically modified products. Opponents of biotechnology predict confidently that labels will lead to widespread rejection of modified products, pointing to recent experience in Europe, where retailers have raced to advertise "G.M.O.-free" products, referring to genetically modified organisms.

But analysts say that outcome depends largely on whether both kinds of products remain on the shelves, and the level of fears about health hazards and pricing. In the United States, they point out, milk produced from cows that have not been injected with Posilac, a bovine growth hormone that Monsanto produces in bacteria, is labeled, but it is usually premium-priced and only a very small percentage of consumers seek it out. Monsanto said that Posilac sales expanded 20 percent this year and that its new production plant under construction in Georgia was expected to begin producing the hormone by the end of next year.

Barring stronger evidence that biotechnology poses major new hazards, analysts and the industry's major players believe that any slowdown or decline this coming year is likely to be reversed. The underlying forces that had made agricultural biotechnology such a hit on Wall Street as recently as last year continue to gather strength. The world's population passed six billion and, although the growth rate is slowing, the demand for rice, wheat and corn, the three mostly widely planted grains, is projected by the International Food Policy Research Institute in Washington to increase 40 percent by 2020.

With the acreage of arable land basically unchanged over the last 30 years, there is increasing pressure to use biotechnology to make agriculture more productive. And researchers continue to expand markedly the industry's tools and potential.

Thomas C. Humphrey, president of DuPont's nutrition and health businesses, notes that public and private money is pouring into research on human, animal and plant genetics and into study of their interaction with the environment. "When all that starts to intersect in two or three years, it's going to be incredible," he said.

The most recent breakthrough was a project to alter rice so that it would produce the protein necessary to create vitamin A in its grain. That development is estimated to be five years from commercialization, but it was widely hailed in developing nations as a way to help prevent the deaths of up to three million children annually and eliminate millions of cases of blindness.

"The main risk is that we keep talking and don't move ahead," said Per Pinstrup-Andersen, director general of the International Food Policy Research Institute.

"If we create biotech options, farmers will take them if they like it," Mr.Pinstrup-Andersen added.

That sounds logical enough, but one hot question is whether farmers actually have much choice. Industry critics contend that the new technology has become so concentrated in the hands of powerful multinationals that they have the marketing influence with international aid agencies to force some products on farmers.

Critics also say that blown pollen can transfer traits from genetically modified crops to the fields of organic farmers and others that want nothing to do with the technology. They are pressing for much stronger regulation and a very broad interpretation of what kinds of effects might be classified as damages for which corporate sponsors of biotechnology could be sued.

The groundswell of public fears and opposition came too late to have much impact on what was planted this year, but farmers are watching the futures markets for signals about what seed to buy this winter. With a growing number staring at bankruptcy after two years of bumper crops and low prices, farmers are worried about paying higher prices for genetically modified seed and then finding the next harvest difficult to sell because of opposition to such crops.

Monsanto has the most to lose from such fears, especially in soybeans. Nearly half of the United States soybean crop this year was modified to tolerate spraying with Roundup, the company's best-selling weed killer.

Analysts predict market declines in the United States for both the modified beans and the company's modified corn (farmers say the latter's ability to generate a pesticide was not worth the cost in many areas this year because of low insect populations).

Monsanto says it remains somewhat optimistic that the market for both will continue to grow both at home and abroad, according to Hugh Grant, co-president of the company's agricultural business.

One key to the year will be Brazil, where approval of Roundup-Ready soybeans has been recommended by the Government but tied up in court. Biotechnology critics say that thanks to the ban, Brazil will have higher exports to Europe, but the real world may not provide a clear test. Reports suggest that anywhere from 5 percent to 15 percent of the Brazilian crop planted this fall has been grown from Roundup-Ready seed smuggled in from Argentina, where the crop is legal and very popular with farmers.

Such percentages could make it too expensive for Brazil to certify its crops as free from modification, since crops from many farms get mixed together during shipment.

For biotechnology backers, such complications are just one more reason to believe that the past year's turmoil will not derail the industry for long. Safety fears may slow growth, they say, but each year will bring new products that make farming easier or consumer products more appealing.

"The genie is out of the bottle with regard to the technology," said Michael Phillips, executive director for food and agriculture of the Biotechnology Industry Organization, a Washington trade group.

Corporate America faces GM onslaught

December 20
The Guardian (London)

A concerted shareholder campaign against genetically modified (GM) foods is about to hit corporate America with a flood of resolutions at company meetings demanding a moratorium until proper testing has been done.

Shareholder groups have initially targeted 24 companies operating throughout the food chain, including household names such as Coca-Cola, Heinz, the US Safeway chain and McDonald's, as well as Monsanto, the life science group at the centre of the controversy because of its GM soya. European groups are also under pressure, including Diageo, the Pillsbury and Burger King group.

Shareholders have submitted resolutions for these companies' annual meetings in the spring, demanding that they stop marketing or distributing GM products until long-term safety testing has ruled out harm to humans, animals, or the environment. Pending complete withdrawal, they demand labelling of food products so that consumers can avoid GM ingredients if they wish.

The campaign is being co-ordinated by the Interfaith Center on Corporate Responsibility (ICCR), an umbrella body for 275 religious and other groups which claims to control $100bn of shares in US companies. The ICCR has led a number of successful shareholder campaigns, including withdrawal from South Africa, action against tobacco products and pressure for companies to adopt environmental policies. 

Ariane van Buren, ICCR's director of energy and environmental programmes, said opposition to GM foods was growing strongly in the US, fed by success in Europe.

"The action in Europe has been a very important precedent", she said. "This is going to grow and companies need to think it through."

She said an attempt to have the resolutions ruled out of order was a routine blocking tactic, but was unlikely to succeed because shareholders could demonstrate they had a right to know company policies in this area.

The campaign has cited decisions to exclude GM ingredients by Sainsbury and Tesco as well as the UK arms of fast food chains McDonald's, Burger King and Kentucky Fried Chicken.

In a letter to chief executives of the targeted companies, the campaigners quote these examples and ask: "How does this company plan to respond to popular challenges to the production, use or sale of genetically modified food?"

They raise questions of health and safety, loss of control over seeds by farmers, consumers' right to know what is in their food, and fears about the long term ecological impact of genetic modifications.

In a supporting statement to the resolution demanding a moratorium, the groups raise the financial risk to companies which persevere with GM products.

They say: "Our company should take a leadership position in delaying market adoption of genetically engineered crops and foods. Failure to do so could leave our company financially liable."

Ms van Buren said companies usually tried to reach agreement before the annual meeting with shareholders backing such resolutions.

But she believes that most US companies still do not understand the power of consumer resistance and will be unlikely to offer big enough concessions to satisfy shareholders.

"There's a good chance we are not going to get an offer which is significant enough. They have been caught off guard - even now. They are surprised at the shareholder reaction. I can't believe they are so naive."

The targeted companies include life science groups American Home Products, Dow Chemical and Du Pont, the food ingredients company Archer  Daniels Midland, consumer products groups General Mills, PepsiCo, Philip Morris, Quaker Oats, and Sara Lee. European groups in the firing line in addition to Diageo include Hoechst, Novartis, Rhone Poulenc and Schering.

Monsanto, Pharmacia & Upjohn agree to merge

December 19
Reuters

Life sciences firm Monsanto Co. and U.S.-Swedish drug group Pharmacia & Upjohn Inc. said on Sunday they agreed to merge, forming a company with a market capitalization of more than $50 billion and an enviable collection of blockbuster drugs.

The deal ends months of speculation that Monsanto, troubled by a depressed stock price and mounting opposition to its controversial genetically modified crops, would split off its agribusiness unit or be acquired by a larger company.

Under the terms of the agreement, each Pharmacia share would be exchanged for 1.19 shares of the combined company, while each Monsanto share would be worth one share. Monsanto shareholders would own 51 percent of the combined company.

Pharmacia shares closed Friday at 50-3/8, while Monsanto's stock ended at 41-3/4, both on the New York Stock Exchange. 

Total sales of $17 billion

The yet-to-be-named company would be the 11th largest pharmaceutical firm in the world, with $10 billion in prescription drug sales. Including revenues from the agribusiness unit and other products, the combined company would have total sales of about $17 billion.

The company would boast an arsenal of top-selling drugs to treat ailments including arthritis, glaucoma, colorectal cancer and insomnia. Monsanto's Celebrex arthritis treatment, introduced this year, has already topped $1.4 billion in sales, while Pharmacia's Xalatan is the world's best-selling prescription medication for glaucoma.

The company would also own the leading herbicide, Roundup, and make genetically modified corn, soybean and cotton seeds -- immensely popular with U.S. farmers but the target of fierce opposition in Britain and elsewhere.

Monsanto and Pharmacia said they expected to achieve annual cost savings of more than $600 million, some of which would be reinvested in the company. 

``I think Pharmacia & Upjohn is a decidedly better company with this deal,'' said David Saks, an analyst with Gruntal & Co strategic growth funds. ``The merger will put it in the major, major leagues. It has been about a $28 billion company in market capitalization, far behind the other big U.S. players. Now it will get closer in size to Warner-Lambert, Schering-Plough and Eli Lilly, which are all big-name companies under $100 billion in size.''

Saks said Pharmacia would win immediate prominence by obtaining Monsanto's hot-selling Celebrex, which he expects to generate annual sales of over $3 billion by 2002.

Pharmacia Chief Executive Fred Hassan, credited with improving profits at the drug company since he took over as chief executive in 1997, would be president and CEO of the combined company.

Monsanto Chairman Robert Shapiro, long admired by analysts as a visionary but recently criticised by investors over Monsanto's weak stock price, would be chairman. He plans to step down after 18 months, and Hassan would then assume the role of chairman.

Merger of equals

The deal marks Monsanto's second try at a so-called ``merger of equals.'' Its agreement to merge with drug firm American Home Products Corp. collapsed last summer, sending Monsanto's share price plummeting. At the time, analysts said differing management styles sank the deal. In a telephone interview with Reuters, Shapiro said this merger would succeed.

``We have a management structure that is going to work,'' he said. ``We have a CEO in Fred who has a proven record in the pharmaceutical industry and who is going to have a wonderful time taking advantage of the growth opportunities that both of these companies present together. Culturally and strategically and as a matter of business logic, these are two very compatible companies.''

The corporate headquarters would be in Pharmacia's U.S. hometown of Peapack, N.J., which would also house the drug unit. The agribusiness division would remain in St. Louis, where Monsanto is based.

Monsanto and Pharmacia said they planned to offer up to 19.9 percent of the agribusiness unit in an initial public offering, and would operate it as a separate legal entity with its own stock and board of directors.

Shares dragged down by agribusiness

The agribusiness unit, while profitable, has been a drag on Monsanto's share price because of a global downturn in the world farm economy and growing opposition to its genetically modified seeds. Last week, biotechnology opponents sued Monsanto, alleging it rushed the genetically modified crops to market without first ensuring they were safe for the environment and for human consumption.

However, the seeds are popular with U.S. farmers, who planted them on more than half of the 1999 soybean crop and a third of the corn crop. Among the best-selling seeds are those that were modified to resist crop-eating pests or to withstand powerful herbicides.

In a telephone interview, Pharmacia's Hassan said the combined company was committed to the agribusiness unit despite moves by other drug firms to exit similar businesses.

``We have looked at this business,'' he said. ``It is a technology-intensive business (with a) very good research pipeline. We want to run it as an autonomous subsidiary through this partial IPO because we believe that a lot of value can be unlocked in this great business.''