Monsanto, a company
best noted for genetically modified seed, has now made quite a flourish
about engineering its balance sheet.
The world's biggest
seed group has been pressed by shareholders to stop keeping a net cash
position, and run with borrowings, like most of its peers.
Now is has answered
their prayers. By introducing a net debt target of 1.5 times earnings before
interest, tax, depreciation and amortisation (ebitda), the group has put shareholders in line for quite a
That looks a far
better bet that the takeover of Swiss-based rival Syngenta that Monsanto bosses
had also been considering.
Cash to spend
Investors will get
a stack of cash without risk of putting Monsanto's financial stability on the
To get a measure of
the amounts at stake, consider that Monsanto ran in its last financial year
with a net cash position equivalent to 0.4 times ebitda.
Adjusting to its
new target means the release of some $10bn, assuming the ebitda of $5.3bn
next year that analysts have factored in.
And that's before
counting in the net cash flows of some $3bn a year that the company is
It certainly has plenty
of firepower to support the $10bn in share buybacks it has promised.
And the buybacks
have offered Monsanto some extra leverage, in publicity terms, too.
The group also on
Wednesday revealed a target to double, at least, by 2019 its earnings -
on a per share basis. While that feat looks daunting, but not nearly so
tricky when Monsanto is buying back its stock by the hatful.
At today's stock
price, the best in six years, the company would be able to afford more than 87m
of its shares with its buyback fund, topped up with $1.1bn which remains
unspent from its last programme.
amount of stock would be enough to raise earnings per share by 20%, before
factoring in any growth in profitability.
Better than Syngenta
And all this while
making the company more tax efficient.
A major benefit of
debt is that, much to the chagrin of many policymakers, interest payments can be
put against tax, unlike dividends.
That looks a much
better way of improving Monsanto's tax position than moving to Switzerland, an
idea the group was reported on Tuesday to have looked at, through a takeover of
Syngenta, one of its closest rivals.
still says it is in the market for acquisitions, for now it deserves applause
for choosing to send a stack of cash back to shareholders rather than splash
out on Syngenta.
This is after all a
deal which, however big the tax perks, would likely have seen many benefits
from costs savings disappear through a tortured anti-trust process.