DuPont buying stake in Pioneer seed corn company
DES MOINES, Iowa (AP) _ Pioneer Hi-Bred International Inc., under pressure to maintain its position as the world’s largest seed corn company, is teaming up with chemical giant DuPont.
DuPont said Thursday it is spending $1.7 billion to buy a 20 percent stake in Pioneer, which is facing new competition as biotechnology transforms the fast-growing seed industry.
The companies will form a joint venture for crop research.
``A revolution is under way in improving crop genetics, which has the potential to benefit everyone,″ said Pioneer chairman and president Charles S. Johnson.
With larger companies eyeing the seed industry, Pioneer had been rumored as a takeover target in recent years.
``Biotechnology has changed the dynamics of agriculture,″ said Prudential Securities analyst John McMillin. ``This move by Pioneer helps ensure the company’s independence, and it aligns them with a research giant.″
The company had 44 percent of the worldwide seed corn market in 1996, down from 45 percent a year earlier.
Under the agreement, DuPont will buy 20 percent of Des Moines-based Pioneer’s stock for $104 per share and will get two of the 15 seats on Pioneer’s board of directors. Pioneer will use the proceeds to buy back its own stock.
DuPont will be buying Pioneer stock at a significant premium. Pioneer stock closed Wednesday on the New York Stock Exchange at $76.56 1/4 per share. On Thursday, it shot up $13.43 3/4, or 17.6 percent, to close at $90 per share.
DuPont stock rose 25 cents to close at $69 per share on the NYSE.
The two companies said they will make a combined $400 million investment in agricultural research next year. They will form a joint venture, Optimum Quality Grains, to market new products. Results of the joint research will also be used separately by the two companies in their own products.
Pioneer and its rivals are aggressively developing and marketing new generations of genetically altered seeds with built-in resistance to herbicides and to pests such as the European corn borer.
The new seeds are coming onto the market at a time U.S. farmers are freed from planting restrictions by last year’s federal farm bill, and nations are seeking to boost production to meet rising demand for feed grains.
Competition is keen. Pioneer and DeKalb Genetics Corp., its biggest competitor, are waging a court fight over who has rights to key technology for transferring traits in corn plants.
Pioneer also filed a breach-of-contract lawsuit against Monsanto Co., its former partner in developing a line of insect-resistant corn. Pioneer said in documents filed in that lawsuit that it rejected a potential takeover offer from Monsanto.
Monsanto, based in St. Louis, later acquired a 40 percent stake in DeKalb Genetics Corp. of DeKalb, Ill., the second-largest seed corn company in 1996. In January, Monsanto paid $1 billion to acquire Holden’s Foundation Seeds Inc., a family-owned Iowa company with valuable corn seed stocks for genetic research.
``I think the sides are now well set, with Monsanto and DeKalb on one side and Pioneer and DuPont on the other,″ McMillin said.
DuPont said it expects to take a one-time charge to earnings of less than $1 billion to write off research and development activities that are now under way and could be duplicated by the alliance.
Pioneer ended fiscal 1996 with net income of $223 million on revenues of $1.7 billion. Through the first three quarters of its current fiscal year ending Aug. 31, Pioneer earned $285 million on $1.6 billion in sales.
Dupont, based in Wilmington, Del., said it will pay for the Pioneer stake with cash and debt.