Drug Giants Drop Plan for Merger
American Home Products Corp. and Monsanto Co. called off their $33.6-billion merger Tuesday over what some analysts said was a clash between their top executives over how the new company would be run.
The merger plans, announced June 1, would have created a life-sciences giant with a market value of $96 billion and expected annual profit of $3 billion. It would have been the biggest combination in the pharmaceutical industry to date.
Wall Street sent both stocks plunging in heavy trading on the news, as the breakup of the merger eliminated expected cost savings for both companies.
Monsanto stock plummeted $13.38, or 26%, to close at $37, and American Home shares fell $5, or 10%, to $45 on the New York Stock Exchange.
Monsanto makes the artificial sweetener Nutrasweet and is heavily involved in genetic research for agriculture. American Home is best known for its Robitussin cough syrup, Advil pain reliever and Chap Stick lip balm.
Monsanto had hoped to use American Home’s extensive drug distribution network to market its own new pharmaceuticals and to leverage American Home’s consumer-products network to build a biotech-based nutrition business.
American Home, facing millions of dollars in potential liabilities from hundreds of lawsuits over diet drugs used in the “fen-phen” combination, hoped to gain access to new drugs and genetic technology in the merger.
The gains from the combination were overshadowed, though, by the challenge faced in melding contrasting cultures, said Jeff Chaffkin, an analyst with PaineWebber, who has a “neutral” rating on American Home.
The companies refused to detail what killed the deal, saying only that their decision was in the best interests of shareholders.
Monsanto and American Home’s plan to have each chairman and chief executive share their duties also could have pressured the pact. “The dual-CEO strategy was a bit unwieldy with each CEO believing he would be the survivor, though neither man was going to give ground,” said James Kelleher, an analyst with Argus Research.
Jeffrey Kraws, an analyst with Everen Securities, said Monsanto told him that the top executives from the two companies differed on how they wanted to run the combined entity.
“They could not see eye to eye on a number of issues, including staffing . . . and the direction of the company,” he said.
In addition to splitting leadership duties, the companies would have evenly split membership on the board of directors. Some analysts said that may have been too much for the bigger American Home to accept.
American Home spokesman Doug Petkus said the company remains open to another acquisition but no deal is imminent. The failure to consummate the Monsanto merger marks the second time this year American Home failed to close a major transaction.
In February, the company had discussed merging with British drug maker SmithKline Beecham. But SmithKline backed out in favor of talks with Glaxo Wellcome, which were later aborted.
Monsanto said it still plans to buy the remaining 60% of DeKalb Genetics Corp., a seed corn company, for about $2.3 billion. That deal is under review by the Federal Trade Commission.
