Monsanto to Buy Stake in Calgene, Inject Vital Cash : Biotech: Deal would propel first U.S. seller of genetically engineered food to the top of the $6-billion tomato-market heap.

Monsanto Co. said Wednesday that it is buying nearly half of Calgene Inc., a Davis, Calif., agricultural biotechnology firm that last year became the first U.S. company to sell a genetically engineered food--its MacGregor brand tomato.

The deal, which analysts valued at between $120 million and $210 million, would make Calgene No. 1 in the $6-billion North American tomato market and bring Monsanto potentially lucrative technologies that would complement some of its agricultural research.

Monsanto said it will pay Calgene $30 million for a 49.9% stake in the smaller company, extend a long-term credit line of $85 million, and provide it research on produce and oil seeds. Calgene will get $10 million of the $30-million payment as an advance, the companies said. Additionally, Monsanto will turn over to Calgene its interests in Garguilo, a Naples, Fla., produce company that currently is the largest tomato packer, controlling 8% to 10% of the U.S. market.

As part of the agreement, Monsanto would be restricted from buying additional shares of Calgene until 1998, when it would have to pay market prices. Calgene officials said their intent was to keep the company independent.

The agreement marks the largest deal in the agricultural biotechnology field, though analysts said that smaller linkups in the industry could prove just as significant in the long run.

Monsanto, a St. Louis-based maker of agricultural, chemical and pharmaceutical products, currently owns 49.9% of Garguilo. Eventually, however, Calgene would probably own all of the produce grower and distributor. Monsanto is expected to increase its stake in Garguilo to 82% as part of the Calgene deal and has options to acquire the remaining 18%.

Garguilo would give Calgene a much-needed extensive growing and distribution system for its MacGregor tomato--designed through genetic engineering to stay fresher longer--and future biotech food products. Calgene would also get Monsanto’s fresh-tomato research programs.

Most important to Calgene, however, would be the cash infusion and strong backing of Monsanto, which last year had sales of nearly $8 billion.

Calgene has been cash-strapped practically since its birth in 1980, and Chairman and Chief Executive Roger Salquist has spent much of his energy and focus on raising funds for the company.

“We’re trying to do an awful lot with limited resources, and having a major partner that gives us financial backing and complementary science, I think, is the right thing to do,” he said.

Salquist said Monsanto’s investment in the company “continues to validate to people that there is a huge opportunity in the food and agriculture sector of biotechnology that the [stock] market continues to dismiss. And it gives credibility to what we’ve been doing, which in many cases has been more visible than what Monsanto has been doing.”

Calgene’s stock was among the most active Nasdaq stocks Wednesday, closing at $8.25, up 50 cents; Monsanto added 50 cents to $88.625.

Some analysts said Monsanto was getting a deep discount for the 30 million new shares that Calgene would issue to it. But Andre J. Garnet, securities analyst with A.G. Edwards, said it “appears to be a very good deal for Monsanto; the problem is valuing what Monsanto is giving to Calgene.”

The deal is expected to close by the end of the year.

While Monsanto has spent an estimated $1 billion on biotech research over the past 15 years, its only bioengineered product on the market so far is Posilac, its brand of recombinant bovine somatotropin (BST), which increases cows’ milk production. Ironically, when opposition to BST was at its height five years ago, Salquist was one of several biotech industry executives who were critical of Monsanto for selecting the highly controversial BST as its first biotech product.

Monsanto has received approval for two other biotech products: potatoes with built-in insect resistance and soybeans resistant to Monsanto’s own Roundup herbicide.

Other Calgene products that have cleared regulatory hurdles include an herbicide-resistant cotton and oil seeds.