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Opinion: Monsanto shows its soft underbelly

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Monsanto may have a soft underbelly after all.

The US seeds and herbicides group looked pretty invulnerable when agriculture was the next big thing, growing earnings nearly 10-fold between 2005 and last year.

But the sale of sunflower seeds business to Switzerland's Syngenta looks the second sign in three months of chinks developing in Monsanto's armour.

Modest price

Sure, the $160m disposal is far smaller beer than May's warning of plunging sales of Round-up, the herbicide which has been a bedrock of Monsanto's success. Even in a poor third quarter, gross profits from Round-up and related glyphosphate weedkillers reached $273m.

But it hardly looks like Monsanto was made an offer for its sunflower division too good to refuse.

The all-in sales price equates to twice the unit's sales last year. That's about what Syngenta trades on, as a multiple of enterprise value to revenues, with Monsanto itself enjoying a rating of twice that.

Costs drain

Nor is Monsanto desperate for the cash. Its debt levels are minimal.

The sale looks a sign of the difficulty facing even corporate giants when they have low shares in a seeds market, but carry many of the same cost drains as they would if ranked first.

After all, just bringing a product to market involves huge upfront costs, in research and development spending. That's before a single seed has sold.

Winners or losers?

Indeed, Monsanto hardly looks the loser of this deal.

Focusing itself on its core seeds, such as corn, will give the group biggest bang for its bucks at a time when its Round-up cash cow is ailing.

And Syngenta has not come off badly. It will, for a reasonable price, gain an unassailable position in the sunflower seed market. (In fact, the acquisition results in some outcomes – such as a global market share of 30% plus - which might ring regulatory alarm bells, although it must be assumed that Syngenta has done its antitrust homework.)

It may be the smaller seed companies which should be worried. If a giant such as Monsanto can't make a go of a below-pole market ranking, who can?


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