Updated from 7:00 a.m. EST
American Home Products
said Tuesday that it will sell its agricultural products unit to Germany's
for $3.8 billion in cash and the assumption of some debt.
Pharmaceuticals maker American Home announced on Feb. 7 that it would sell its
Cyanamid Agricultural Products
division by the end of the year in order to concentrate on its pharmaceutical and health care businesses. The farm products division develops and markets herbicides, insecticides and fungicides.
Analysts calculate the debt portion at $100 million.
The deal occurred more quickly and for more money than expected, with an expected price of $3 billion.
Cyanamid has been a difficult business for them
AHP and people who invest in pharmaceuticals generally don't like the ag business because it's cyclical," said analyst Kent Blair of
Donaldson Lufkin & Jenrette
. "This enhances the attractiveness of the company significantly." He rates American Home a buy and his firm has done no underwriting for the company.
The divestiture makes American Home a more attractive
merger candidate, though it must still settle the matter of its diet drug liability problems. A potential merger with
fell through six weeks ago, while similar deals with
also collapsed in the past two years.
"With the resolution of the diet pill situation in a couple months, things are really playing out for them," Blair added.
Today's purchase catapults BASF, based in Ludwigshafen, Germany, into the top three agrochemical producers worldwide, from its current rank of No. 9, and greatly strengthens its position in the U.S. market.
Its crop protection sales will more than double, from $1.9 billion in 1999, but its 13% market share will still trail Syngenta, the industry leader formed by the pending spinoffs of
BASF is buying the division at the bottom of the cycle for the agricultural products business, which has been hit by increased competition as well as considerable criticism for the development of genetically modified foods. In particular, Cyanamid's soya bean herbicide is competing with Monsanto's biotechnology-enhanced Roundup product. However, the backlash against genetically modified foods may help Cyanamid in the short term.
BASF also said the acquisition will make a positive contribution to earnings starting in 2001, with $250 million in cost savings expected.
Over the last four years, BASF has sought to strengthen its crop protection portfolio with the acquisition of
North American corn herbicide business in 1996, a majority stake in generic product supplier
in 1998 and a 40% stake in European seed supplier
The transaction is expected to be completed by July 1.
Other bidders for the unit included
Shares of American Home, based in Madison, N.J., closed Monday trading at 52 7/16, up 1 3/16, or 2%. BASF's American depositary receipts closed at 47 7/8, down 1, or 2%. In midday trading on the Frankfurt bourse, BASF shares were down 0.75 euros, or 2%, to 48.75 euros. There was no action in pre-market trading, according to