Shapiro tries to save face

Margie Manning / St Louis Business Journal 12nov99

Monsanto Chairman and Chief Executive Robert Shapiro has fallen out of favor with Wall Street and now is trying to save face as he works to sell all or part of the company, according to analysts who follow the firm.

It's a far cry from March 1998, when a glowing article in Forbes magazine -- headlined "Deal-a-day Bob" -- said shareholders were delighted with Shapiro's performance.

Analysts said investors blame Shapiro for botching a proposed merger with American Home Products Corp. a year ago. They've also lost patience with Shapiro's vision for Monsanto, which was restructured under his watch as a life sciences company, focusing on agriculture, food ingredients and pharmaceuticals.

"He's a visionary who single-handedly came up with the idea of life sciences," said Chris Nadai, a stock analyst at David L. Babson & Co., a Cambridge, Mass.-based investment firm. "But he's not the person to lead Monsanto through that strategy. His time has passed."

Shapiro could not be reached for comment.

Analysts are closely scrutinizing Shapiro in the midst of a fresh round of reports that the company is in merger talks.

The Wall Street Journal reported Nov. 9 that the Swiss life sciences firm Novartis AG has emerged as a serious suitor for Monsanto, which also has held talks with Schering-Plough Corp. and DuPont Co. On Nov. 10, Pfizer Inc. said it would be interested in purchasing Monsanto's pharmaceutical unit, G.D. Searle.

Monsanto spokeswoman Scarlett Foster called the Wall Street Journal report speculative and said the company would not comment on any possible sale negotiations.

But analysts are not shy when it comes to talking about what a sale would mean for Shapiro.

Nadai said Shapiro is "trying to save face -- both professionally and in the investment community."

"What I've heard over and over from people inside the company is that Shapiro doesn't want to go out with a $35 stock," said Larry Smith, senior vice president at Sutro & Co., a New York-based brokerage. "My sense is he's the driving force behind trying to get a deal done."

Haunting Shapiro is the failed $35 billion merger with American Home Products. Before that deal fell apart in October 1998, American Home Products offered Monsanto $65 a share. Monsanto stock was trading at $50.375 on Oct. 12, 1998, the day before the merger was called off.

Nadai said Shapiro and his staff made excessive demands on American Home Products and the company's chairman, president and chief executive John Stafford.

"They had the moment, and (Shapiro) botched the deal," Nadai said. "He goofed, he missed it, because he was unreasonable and he allowed his executives to be unreasonable."

Since the American Home Products deal fell through, Monsanto's stock has fallen dramatically in price, closing Nov. 10 at $45.875. The stock had lingered in the $30 to $40 range until recently, when it got a boost from merger talks in the pharmaceutical industry, including a new deal by American Home Products to buy Warner-Lambert Co. and a rival bid by Pfizer for Warner-Lambert.

Now, shareholders are pushing Shapiro hard for Monsanto to get a piece of the pharmaceutical merger mania.

Monsanto has three options, Smith said:

Sell the entire company outright.

• Spin off Searle as an independent company or sell it to another firm, raising about $2 billion.
• Spin off the agriculture business.

Any of those options would require Shapiro to concede that his vision for Monsanto hasn't worked out the way he planned, said Alex Hittle, an analyst at A.G. Edwards in St. Louis.

"I'm not sure he's ready to hang up his cleats yet, but he's getting to the point where he's thinking about what his legacy will be," Hittle said. "He has to make a stand. Will he stick with his original vision or say, `Let's try to get out of this thing somewhere in the neighborhood of the value we had when the deal with American Home Products was struck.' "

Bill Fiala, an analyst at Edward Jones, said he thinks Shapiro will be practical in the matter.

"Wall Street doesn't tend to be too patient," Fiala said. "I think (Shapiro) has come to the realization that his vision for the company is not going to progress fast enough to appease Wall Street.

"If he does break up the company -- either through selling one of the major businesses or spinning off Searle -- to a certain extent he would be throwing in the towel on the life science concept."

Nadai said Shapiro still has a chance to come out on top.

"If the majority of the shareholders get cash at $55 a share, Shapiro will retire a hero in the eyes of many shareholders," Nadai said. "He botched the first deal, but he came up with this one in time."