Monsanto, the seeds giant reported to have held talks over a
$40bn takeover of Syngenta, revealed plans to raise its reliance on debt amid a
drive to double its earnings by 2019 – both by organic growth and acquisitions.
Monsanto, which has earned strong credit ratings thanks to limited debts, and which often runs a net cash position, said it was to "advance" its capital structure by
taking on net debt, with a target level of 1.5 times earnings before interest,
tax, depreciation and amortisation (ebitda).
The move will support a drive to return cash to shareholders
through a two-year, $10bn share buyback scheme, on top of the $1.1bn left over
from the previous programme.
The group said that, "using cash in hand and access to debt",
it would spend $6bn on buybacks "near-term".
However, the company, which also announced an offering of
senior notes "in the near-term", said that the borrowings wold allow it extra
scope for funding growth – both in its existing operations and through
"Monsanto's balance sheet and cash flow generation will
afford the company the financial flexibility to pursue both organic and
external growth opportunities," the group said.
While making no mention of Syngenta, the world's top
agrichemicals group, Monsanto said that it would use takeovers to "drive growth
through yield technologies in the seed, in the bag and in the field".
The group, which in October unveiled the $930m acquisition
of weather insurance group Climate Corporation, has declined to comment on
reports on Tuesday that it had held talks with Swiss-based Syngenta over a
The talks, now abandoned, were said to have been spurred in
part by a quest to exploit lower Swiss holding taxes.
Monsanto revealed its debt proposal as it revealed a target
of "at least" doubling its earnings per share by 2019.
The group revised to $5.12-5.22 its estimate for earnings
per share in its current financial year, which ends in August, the top end of
its previous range of $5.02-5.22 a share.
Hugh Grant, the group's chief executive, acknowledged the "more
challenging agricultural environment", which was highlighted separately on Wednesday
by irrigator maker Lindsay Corporation.
However, the group said that its new target reflected its "confidence
in the growth opportunity for the core business", with seeds business expected
to drive earnings growth.
Monsanto actually reported a 5.6% fall to $858m in earnings
for the March-to-May quarter, on revenues flat at $4.25bn.
However, the decline reflected factors such as higher taxes
and research and development spending, with gross profit in seeds showing a 2.2%
rise to $1.86bn, as growth in cotton and soybean seeds more than offset a drop
in takings from corn, reflecting lower US plantings of the grain this year.
The group said that Latin American area planted to its new
Intacta soybean seed, termed a "game changer" by Credit Suisse on Tuesday,
would growth three-to-four times in the
next fiscal year, to 10m-12m acres.
The results were well received by investors, who had
expected earnings of $1.56 a share for the latest quarter, below the $1.62 a
share that Monsanto reported.
Shares in the group soared 6.7% to a $128.77 in early deals
in New York, the highest since June 2008.