Monsanto deal to bring Solutia out of bankruptcy
Tue Jun 7, 2005 02:06 PM ET
KANSAS CITY, Mo., June 7 (Reuters) - Monsanto Co. said on Tuesday it would invest up to $250 million in its former affiliate, Solutia Inc., in a deal that could pull the specialty chemicals firm from bankruptcy and restore it to the seed company.
Shares of Monsanto rose more than 6 percent, bolstered both by the Solutia settlement and news also out Tuesday that Monsanto was lifting its outlook for quarterly operating earnings.
"Solutia has been a distraction," said Argent Capital Management analyst Ken Crawford. "Now that issue looks to be past them."
Monsanto's commitment to add up to $250 million to Solutia's coffers comes on top of more than $600 million already spent or set aside by Monsanto for Solutia-related concerns over the last two years.
Monsanto spun off its chemicals businesses into Solutia in 1997 and has maintained through Solutia's struggles that it bore no liability for Solutia. But the agreement announced Tuesday could once again cement the ties between the two St. Louis-based companies.
Under the terms of the agreement, Solutia's unsecured creditors will be offered an equity stake in Solutia totaling up to 22.7 percent of the common stock in the reorganized company. If the creditors do not elect to participate, Monsanto has pledged to cover the entire amount, worth $250 million, said Monsanto spokesman Glynn Young.
The money is earmarked to clean up old chemical plant sites from pollution, satisfy legal claims against Solutia and partially satisfy medical, disability and life insurance benefits for retirees.
The agreement also gives Monsanto about 30 percent equity interest in exchange for $284 million that Monsanto last year committed to pay out for Solutia liabilities.
All of this comes on top of $400 million spent by Monsanto in 2003 in an unsuccessful attempt to keep Solutia out of bankruptcy.
"This agreement-in-principle is a major milestone in the successful reorganization of Solutia," said Solutia Chief Executive Jeffry Quinn.
The agreement still has to be approved by the bankruptcy court.
Monsanto's move toward a possible majority stake of 52.7 percent in Solutia comes eight years after it created Solutia as a spin-off of its chemical businesses, which had a legacy of toxic chemical contamination problems.
Monsanto now operates as an agricultural chemicals and seeds company, while Solutia has a range of specialty products, including nylon fibers for carpets and plastic films to strengthen windshields.
But Solutia's efforts to grow have been stymied by asbestos and PCB contamination clean-up costs, and expenses for some 600 lawsuits along with costly benefits for retired employees - all liabilities Solutia said were forced upon it by Monsanto.
The liabilities led Solutia to file for bankruptcy protection in 2003.
TRIMMING ITS SAILS
Also on Tuesday, St. Louis-based Monsanto cut its forecast for third-quarter net earnings per share because of the costs of its recent purchases of Seminis Inc., the world's largest commercial fruit and vegetable company, and the Emergent Genetics Inc. cotton seed company.
For the quarter ending in May, the company expects net earnings in a range of 12 cents to 17 cents per share, down from a prior estimate of 15 cents to 22 cents per share, the company said.
Monsanto raised its forecast for quarterly earnings on an ongoing basis, citing strength in its seeds and bioengineering businesses, among other factors.
The company said it expects operating earnings of about $1.05 per share, up from a previous estimate of about $1.00.
The adjustments are not related to the Solutia deal, said Monsanto spokesman Bryan Hurley.
Monsanto shares climbed $3.69 to $62.49 in midday trading on the New York Stock Exchange.
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