Monsanto Co. (MON), the world’s largest seed producer, is selling off its rights to a synthetic milk-producing hormone in order to focus its attention more closely on its core business of developing genetically modified seeds and pesticides.
U.S. pharmaceutical company Eli Lilly & Co. (LLY) will pay Monsanto $300 million for Posilac, the brand name for recombinant bovine somatotropin or rBST. The deal includes the global sale rights and a Georgia-based manufacturing plant.
Lilly has been distributing Posilac, which has been on the market since 1994, for Monsanto under an exclusive agreement and hopes this deal will enable it to expand its veterinary health offerings.
“You’d assume the controversy is part of the price, so there must be some other reason Lilly wants this asset,” Charles Anthony Butler, an analyst for Lehman Brothers Holdings Inc. (LEH) in New York, told Bloomberg News. “Maybe it’ll help them sell other products to those farmers. Animal health as a component for all pharma companies is a business they want to grow.”
While Lilly’s motives for the purchase remain unclear, it’s a smart move for Monsanto.
Growing consumer opposition to the use of hormones in dairy products has been swelling over recent years. Sales of such products are already outlawed in Canada and parts of the European Union.
In the United States, leading grocer The Kroger Co. (KR), coffee-chain Starbucks Corp. (SBUX) and the largest domestic milk processor Dean Foods Co. (DF) all refuse to use milk that contains rBST.
This recent sale is part of Chief Executive Officer Hugh Grant’s plan to sell-off Monsanto’s smaller animal units in order to concentrate company efforts on Monsanto’s popular crop-agriculture product lines, which include Roundup-brand herbicide, as well as modified corn and soybean seeds.
Divesting this controversial asset can only help Monsanto bolster its international reputation. Shares gained $5.22, or 4.63% yesterday (Wednesday), to close at $118.08.
Meanwhile, Lilly’s stock shed $0.39, a decline of 0.82%, to close at $47.41.
By Jennifer Yousfi