Monsanto Rises on Merger Talk

The life sciences company is reportedly in serious talks with Pharmacia & Upjohn on a merger.
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Updated from 11:09 a.m. EST

Shares in

Monsanto

(MTC) - Get Report

rose Friday following a report that the life sciences company is in serious merger talks with the pharmaceutical giant

Pharmacia & Upjohn

(PNU)

.

By midday, Monsanto's stock was up 1 1/2, or 4%, to 41 7/8. But Pharmacia's shares were down 1 5/16, or 2%, to 51 15/16 in midday trading Friday. (Monsanto closed up 1 3/8, or 3%, to 41 3/4, while Pharmacia settled down 2 7/8, or 5%, 50 3/8.)

The two companies are having serious discussions about a possible merger and the boards of the two companies are supposed to discuss a combination this weekend,

The Wall Street Journal

reported Friday. A spokesman for Pharmacia, based in Peapack, N.J., said it is company policy not to comment on speculation. A representative for St. Louis-based Monsanto declined to comment.

The stock market's tepid response to the reported discussions shows how some people on Wall Street are wondering whether the talks are that far along. "My gut is, this is a trial balloon," said Richard Stover, an analyst with

Arnhold & S. Bleichroeder

in New York "Depending on how the market reacts, they may have further discussions this weekend."

If Monsanto and Pharmarcia do pursue a merger, it would be the latest deal in an industry roiled by friendly and hostile takeover bids in recent weeks. For example,

Pfizer

(PFE) - Get Report

is embroiled in a heated takeover battle with

Warner-Lambert

(WLA)

, which had agreed to a friendly merger with

American Home Products

(AHP)

.

The discussions would be Monsanto's second flirtation with a merger in the last few months. The company had been in talks with

Novartis

of Switzerland, but those talks collapsed earlier this year. Monsanto, which has been sued by farmers and environmentalists seeking to stop its genetic engineering of crops without more rigorous testing, also abandoned merger discussions with AHP last year.

Pharmacia and Monsanto share similar market capitalizations: Pharmacia clocks in at roughly $28 billion, while Monsanto is valued at about $26 billion. If a deal is struck, Fred Hassan, the 54-year-old chief executive at Pharmacia, would serve as chief executive of the new company, the

Journal

said, and Monsanto's chief executive, Robert Shapiro, 61, would likely become chairman.

Stover of Arnhold & S. Bleichroeder said Monsanto's

G.D. Searle

pharmaceutical business would make a neat fit with Pharmacia.

"The question that is unresolved is, what do you do with Monsanto's ag business?" he said. "If you put that question in Fred Hassan's hands, you 'd get some decent decision-making."

Hassan brings a "pharma-centric" perspective, while Monsanto's management is more "agri-centric", Stover said. That said, questions of what a combined company would do with Monsanto's agribusinesses, such as its biotechnology unit,

DeKalb Genetics

, would remain. Stover's firm has not done any investment banking business with either Pharmacia or Monsanto. Stover does not have an active rating for Pharmacia, and he rates Monsanto a buy.