Monsanto to Raise Stake in Calgene and Replace CEO

Seeking to strengthen Calgene Inc.’s shaky hand in genetic engineering, Monsanto Co. said Wednesday that it plans to raise its stake in the Davis, Calif., company to 54.6% and replace Calgene’s chief executive.

The bid for control, which would cost St. Louis-based Monsanto $50 million, continues the company’s aggressive expansion into agricultural biotechnology and away from its traditional farm chemicals business.

In 1994, Calgene introduced the first genetically altered tomato, but analysts said Monsanto is interested primarily in the company’s emerging expertise in a number of other products, including canola oil, herbicide- and insect-resistant cottonseed and colored cotton.

“I think Monsanto has the potential to be the No. 1 agricultural biotech and food company in the world,” said Sano Shimoda, an analyst at BioScience Securities Inc., an investment firm in Orinda, Calif.

“The key to a competitive position is having direct control over the technology, and clearly Monsanto recognized the tremendous technology that Calgene has in its oils and cotton business.”

Calgene’s stock jumped $1.31 to $6.19 on Nasdaq as a hefty 2.3 million shares traded. Monsanto, which has owned 49.9% of Calgene since June 1995, was unchanged at $31.25 on the New York Stock Exchange.

Under its proposed transaction, subject to the approval of Calgene shareholders and the federal government, Monsanto would buy 6.25 million additional shares of Calgene at $8 a share.

“The real focus and reason for increasing the equity investment is to take better advantage of the technologies that we were initially interested in when we took the first stake in Calgene,” said Scarlett Foster, a Monsanto spokeswoman.

Monsanto acquired its initial stake for $30 million and has invested a total of $97 million in Calgene. It has also made available a $15-million line of credit.

The new cash would be used to pay off Calgene’s $6 million in annual interest expense and to improve the company’s struggling tomato business, which has been hurt by the high cost of developing genes and by low tomato prices.

Monsanto and Calgene also announced that Roger Salquist, 54, has resigned as Calgene chairman and chief executive but will continue as a director and consultant. He is one of the largest individual shareholders, with more than 300,000 shares or options on shares.

“I’ve been contemplating [a departure] for quite some time,” Salquist said. “Twelve years [as CEO] is a long, long time. When you have something as tumultuous as Calgene, it does take something out of you.”

During his tenure, Salquist endured rigorous battles with the Food and Drug Administration in an effort to win approval of the Flavr-Savr bioengineered tomato. He also often bore the brunt of criticism directed by consumer and other groups against the agricultural biotech industry.

He was faulted for inflating investors’ expectations, particularly about the Flavr-Savr. For a time, Calgene stock soared, but after early shipments of the tomatoes were battered in the distribution process, the price crashed back to earth and has since wallowed.

In 1995, Calgene lost $30.6 million, compared with a loss of $42.8 million in 1994.

In an interview in April, Salquist said, “When all is said and done, the biggest mistake was we tried to make it too big, too fast.” But he insisted Wednesday that a good-tasting, bioengineered tomato with strong commercial potential is still possible. Calgene, he said, is seeking to improve its technology in partnership with Gargiulo, a huge Florida produce grower and marketer. Monsanto transferred the ownership of that company to Calgene last year.

An industry analyst noted that Gargiulo focuses on selling commodity tomatoes and was hurt by last year’s disastrously low prices.

“Gargiulo can create some premium tomatoes” without bioengineering, said John McCamant, associate editor of the AgBiotech Stock Letter, a newsletter in Berkeley. “Its emphasis will be on slowly developing the product and making sure they’ve got the best product [before it goes] into stores.” He added that “genetic engineering will have its day in tomatoes.”

At least one Calgene investor said she had mixed emotions about the turn of events, particularly Salquist’s departure.

“I bought [the stock] for personal reasons: The company was in my backyard, I knew and respected the individuals running it, and it was entrepreneurial with some very interesting products,” said Cindi Rich, director of external relations and development at UC Davis. However, she said, it was gratifying to see the market respond by boosting the stock’s value. And she plans to vote in favor of the deal.

Lloyd Kunimoto, Calgene’s vice president for strategic planning and business development, was named acting chief executive. The company has hired an executive search firm to launch a hunt for a new CEO, but Salquist said Kunimoto, whom he described as “the smartest person at the company,” has the inside track.

Calgene last week patented a gene that controls pigments in bioengineered cotton. It also produces oil products from the canola plant that can be used in margarine, cleaning products and lubricants.

In 1998, Calgene plans to market a new cottonseed that will contain genes that help the plant resist herbicides and certain insects.

Monsanto makes Nutrasweet low-calorie sweeteners and a diverse line of chemicals and agricultural products.

“I think if you look at the resources that Calgene has, along with the infrastructure and technology, Calgene now has the financial resources and financial base to really make things happen,” Shimoda said.

Bloomberg Business News contributed to this report.