Monsanto Chairman Robert Shapiro's Charities Will Gain from Pharmacia Merger
David Nicklaus / Knight-Ridder Tribune Business News 29jan00 

Monsanto Co.'s merger agreement with Pharmacia & Upjohn Inc. will enrich Monsanto Chairman Robert Shapiro by at least $22.6 million, but he says he plans to donate much of that sum to charity.

Monsanto also disclosed Friday that it had rejected a $49-a-share takeover offer from a foreign company last year before agreeing to merge with Pharmacia.

Shapiro's employment agreement entitles him to a $7.02 million payment because he will not be chief executive after the merger.

"Premium" stock options held by Shapiro and other executives also become exercisable at whatever price Monsanto stock sells for on the day of the merger, instead of the higher price targets set when the options were issued. The acceleration of these options is worth an estimated $15.35 million to Shapiro. A similar provision in an executive stock ownership plan is worth an estimated $226,000 to him.

Monsanto and Pharmacia disclosed the pay and options arrangements, and the foreign company's buyout offer, in a preliminary proxy statement they filed Friday with the Securities and Exchange Commission.

Shapiro's charitable intentions are disclosed in a footnote to the section about the premium stock options. It says, "Mr. Shapiro has indicated that he intends to donate a substantial portion of the increase in value of his premium options, when realized, to a charitable foundation for the benefit of communities in which Monsanto has major facilities."

Unlike most stock options, which gain in value when a company's stock appreciates even a little bit, the Monsanto options would have had no value unless the stock price rose above $75 within five years. An earlier Monsanto statement called the options "a powerful and aggressive mechanism to reward executives for increasing shareholder value."

But Monsanto's stock isn't even close to reaching the $75 target. The stock has lost 23 percent of its value in the past year and closed Friday at $36.

Monsanto canceled a similar options plan in 1998 when it was planning to merge with American Home Products Corp. It reinstated the premium options last spring, after the American Home deal fell through.

This time, instead of losing their options, Monsanto executives will see a windfall from the merger with Pharmacia & Upjohn. Monsanto estimates that the reduced exercise price is worth $4.2 million to President Hendrik A. Verfaillie, $1.3 million to chief scientist Philip Needleman, $1.3 million to Vice Chairman Richard U. DeSchutter and $7.25 million to 12 other executives.

When they complete the merger, Monsanto and Pharmacia say they will have to take a charge of $70 million, before taxes, to account for the increased cost of the stock options.

They also expect charges of $500 million to $800 million for the cost of combining the two companies, and $110 million for such merger-related expenses as investment-banking fees and regulatory costs.

After the merger, Shapiro will remain chairman for 18 months and then retire. Fred Hassan, chief executive of Pharmacia, will be president and chief executive after the merger, and will succeed Shapiro as chairman.

The agreement calls for Shapiro to remain a senior adviser to the company until Dec. 31, 2003. He is to receive a salary of $480,000 a year as senior adviser and $50,000 a year as chairman.

The preliminary proxy statement also gives a step-by-step account of the negotiations that led to announcement of the merger last Dec. 19.

Shapiro and Hassan first discussed a merger last Sept. 17. They met to discuss a co-promotion agreement for Detrol, a Pharmacia drug for incontinence. "This conversation led to a brief discussion concerning the potential for an even broader relationship, including the possibility of a merger," the SEC document says.

Since the American Home deal fell through in October 1998, Monsanto had held preliminary talks with various suitors. Shapiro briefed the Monsanto board on the Pharmacia discussions during a Sept. 22-24 board planning meeting. He and Hassan then met again in Chicago on Oct. 6.

A week later, Monsanto and Pharmacia signed a confidentiality agreement, meaning that each company would look at the other's books and agree not to tell anyone else what it saw.

October was also when a foreign company showed interest in buying Monsanto. (Monsanto's proxy statement does not identify the company, but it may have been Swiss drugmaker Novartis AG.) The suitor submitted a $49-a-share offer -- more than $10 above Monsanto's market value at the time. But the offer had several conditions.

One condition was that the foreign company would bring its accounting into compliance with U.S. standards and would seek a listing on the New York Stock Exchange.

Another condition, perhaps more onerous to Monsanto's board, would have given the foreign bidder a 50-50 co-promotion agreement for Monsanto's hot new arthritis drug, Celebrex -- even if the merger fell through.

Shapiro met with the foreign company on Nov. 20 and determined that the bidder would not go above $49 a share. Because of the risks posed by the bidder's conditions, the proxy statement says, "Monsanto's management determined to devote its attention to pursuing other alternatives."

In a telephone conversation in late November, Shapiro and Hassan resumed their merger discussions. By Dec. 10, when Monsanto's board met, the deal was taking shape. The board "made a preliminary determination" that merging with Pharmacia "was the most attractive alternative for Monsanto."

Various financial advisers then weighed in, final details were worked out, and Pharmacia's board approved the merger on Saturday, Dec. 18. Monsanto's board approved the next day, and the deal was announced to the public that Sunday evening.

The companies plan to complete the merger by June 30, but they haven't set a date for shareholder votes on the deal.

Technically, Monsanto will acquire Pharmacia & Upjohn, and will then change its name to Pharmacia Corp. The merged company's headquarters will be at the current Pharmacia & Upjohn offices in New Jersey.

Monsanto's agricultural business will be set up as a separate company, which will keep the Monsanto name. It will have its own board of directors and will keep its headquarters in St. Louis. Sometime after the merger, Pharmacia will sell up to 19.9 percent of the agricultural company's stock in a public offering.