Investors Sour on Drug Merger December 21, 1999 By NOELLE KNOX AP Business Writer NEW YORK (AP) via NewsEdge Corporation - The merger plans of Monsanto Co. and Pharmacia & Upjohn Inc. rattled investors Monday, as shareholders thought both mid-sized U.S. pharmaceutical companies could have fetched a better deal. But analysts said the companies are making the right move to sustain their long-term growth in the risky pharmaceutical business. Monsanto's products include the blockbuster arthritis treatment Celebrex; farm chemicals that include the popular herbicide Roundup and genetically engineered seeds for plants such as cotton and soybeans. Pharmacia's major products include Detrol, a bladder-control treatment; Depo-Provera, a contraceptive; and Xalatan, a glaucoma drug. It also sells the over-the-counter hair-growth gel Rogaine. Shares of both companies tumbled the day after they announced an agreement to combine to create the world's 11th-largest drugmaker, a union the companies' executives called vital to sustain their rapid growth, and afford the rising price for discovering and marketing new medicines. St. Louis-based Monsanto fell $5.12{, or 12 percent to $36.62{ and Peapack, N.J.-based Pharmacia & Upjohn, slipped $3.12{, or 6 percent, to $47.12{, as of 4 p.m. on the New York Stock Exchange. The setback on Wall Street reduced the value of the all-stock deal to $23.3 billion from $27 billion when it was announced. Pharmacia investors are concerned about not getting a premium for their stock, and the combined entity would have difficult time in the next year due to Monsanto's slumping agriculture division, analysts said. Pharmacia shareholders would get 1.19 shares of the new company for every Pharmacia share they own, or about $44 per share, based on Monday's closing price. Monsanto, which last year passed on a more lucrative merger with American Home Products, also did not offer any premium for its investors. Its shareholders would get a share of the new company in exchange for each Monsanto share. Monsanto has been on the market for more than a year. After the failed merger last fall with American Home Products, the company held discussions with Dupont and Novartis. Investors in recent weeks were hoping the company would sell or spin off its agriculture division, which has had lackluster performance due to falling farm prices and safety concerns about its genetically modified crops. ``Monsanto shareholders were gearing up for a more definitive restructuring _ a split up of the agriculture division from the pharmaceutical company _ but this deal locks them into the agriculture division for at least another 2{ years,'' said Ian Sanderson, an analyst with SG Cowen & Co. The combined Monsanto-Pharmacia company plans to sell 19 percent of the agriculture business in an initial public stock offering in 2001 or 2002. Though investors reacted negatively to the merger, analysts say the companies are taking the right step. ``The combination has a lot of potential,'' said Joseph Zammit-Lucia, president of London-based Cambridge Pharma Consultancy. Pharmacia gets access to Celebrex and Monsanto's U.S. marketing strength to complement its overseas sales force. Monsanto gets access to several products in late-stage testing from Pharmacia, including the first in a new class of antibiotics. ``Both firms are on the right track,'' said Bob Kirby, an analyst with Edward Jones. ``They see other firms getting bigger and in this industry bigger means better given the price $500 million average price to bring a drug to market,'' he said. Monsanto co-markets Celebrex with Pfizer Inc., and the drug this year became the hottest selling new drug in pharmaceutical history. Celebrex sales are expected to top $1.4 billion in 1999 and about $3 billion in 2003. Though the Celebrex marketing alliance could be threatened by the merger, both Pfizer and Monsanto said they have no plans to change their arrangement.