Merck to Sell San Diego-Based Kelco for More Than $1 Billion

Merck & Co. announced Tuesday that it has signed a definitive agreement to sell its San Diego-based Kelco chemical unit to Monsanto Co. for $1.075 billion.

A Kelco spokesman said no “short term” layoffs are planned among Kelco’s 550 San Diego employees. The longer-term outlook, however, is less certain, he said. Kelco, which makes food additives and preservatives extracted from seaweed and kelp, employs 1,300 overall and reported 1994 sales of about $300 million.

Merck, based in Whitehouse Station, N.J., announced last August that it was selling Kelco as a part of a plan to divest all non-pharmaceutical businesses and focus its resources on core health products and research.

Analysts said the deal makes sense for Merck, which, like most drug companies, is struggling to maintain profit growth at a time when cost-conscious managed health care plans are forcing lower prices. Merck shares were up 37.5 cents to $38.625 Tuesday on the New York Stock Exchange.

Joseph P. Riccardo, senior health care analyst at Bear, Stearns in New York, said the deal follows a pattern for Merck. “It’s another move by the new chairman (Raymond V. Gilmartin) to reduce their dependence on non-strategic assets,” he said.

The outlook for Monsanto is less certain. One analyst said Tuesday that benefits of the deal remain to be seen. The firm’s shares plunged $4 to $68.875, a 6% drop, on the NYSE.

St. Louis-based Monsanto--which manufactures a variety of chemical, agricultural, drug and food ingredient products--said it will complete the purchase over the first quarter of 1995, financing the deal with cash and debt.

Kelco was founded in San Diego in 1929 and acquired by Merck in 1972. Kelco uses huge barges to harvest seaweed from the Pacific Ocean. Extracts are processed at plants in San Diego and in the San Francisco Bay area.