Monsanto, DuPont reach $1.75 billion licensing deal, ending lawsuits

DuPont Co. will pay Monsanto Co. at least $1.75 billion under a new licensing agreement that is part of a deal that also puts aside bitter legal battles between rivals over rights to genetically modified seed technology, the world’s largest seed companies said Tuesday.

The deal throws out a $1 billion jury verdict that DuPont was ordered to pay Monsanto last August. Instead, the companies agreed that DuPont would make royalties of at least $1.75 billion over several years in exchange for broad access to develop products using Monsanto’s leading genetic technology. The companies agreed to drop antitrust and patent claims against each other while entering into a new partnership.

Monsanto shares rose more than 4% on the news, while DuPont shares fell about half a percent.

Still, DuPont officials said the deal is good for shareholders and opens up opportunities for Pioneer’s agricultural seeds business to future growth.

“It’s a smart deal for DuPont,” Paul Schickler, president of DuPont Pioneer, said in an interview. “We have access to two additional technologies that we can now combine with our existing technologies and technologies that are in our process.”

DuPont Pioneer will have broad rights to key new technologies, including combining features, Schickler said.

Monsanto, which generates revenue both from selling seeds and licensing its genetic technology to other companies, said the deal should raise significantly more than the minimum $1.75 billion as DuPont promotes the company’s technology to its broad customer base.

“We would expect them to exceed those lows quite quickly and significantly. They were and are the largest soy company in the world, certainly in the U.S.,” said Scott Partridge, Monsanto’s vice president/strategy. “We’re excited to have them back as a customer of our latest technology.”

Under the agreement, which Schickler said was reached last week, DuPont will pay Monsanto four annual fixed royalties totaling $802 million between 2014 and 2017.

Beginning in 2018, DuPont will also pay unit royalties for Genuity Roundup Ready 2 Yield and Genuity Roundup Ready 2 Xtend soy technology over the life of the agreement in exchange for continued access to the technology. Annual minimum payments through 2023 will total $950 million.

DuPont could begin field testing of Monsanto’s material later this year and could sell Roundup Ready 2 Yield in 2014. If regulatory approvals are obtained, DuPont could start selling Xtend in 2015, according to Schickler.

He added that Pioneer will eventually integrate the technology into its own seed germplasm.

BGC Partners analyst Mark Gulley said the deal appears to be a win-win for both companies, especially DuPont, which has parlayed its legal liability for a $1 billion jury award into royalty payments that provide access to important new technologies.

“Monsanto will get a nice royalty stream, and DuPont will be able to address concerns about the stock in terms of contingent liabilities,” he said.

Access to Xtend is critical because it is considered part of the next wave of herbicide-tolerant crop technologies aimed at addressing the wave of herbicide-resistant weeds sweeping across U.S. farmland.

Legal truce

The settlement comes after a jury in U.S. District Court in St. Louis last year found in Monsanto’s favor that DuPont and Pioneer had breached a licensing agreement for the Roundup Ready trait by attempting to combine multiple traits.

DuPont has been pursuing a separate case against Monsanto alleging anticompetitive conduct, and a trial in that case is scheduled for this fall. However, under the settlement, each side is dropping its claims against the other.

Both DuPont and Monsanto hold strong positions in the U.S. seed industry. They and other competitors race to develop improved crops through genetic modification and other means.

Pioneer, with 2012 sales of $7.3 billion, is gaining market share in North America’s soybean and corn markets, and its brands are popular with farmers.

Monsanto, which had sales of $13.5 billion last year, is considered a market leader in the development of genetically modified crop technology and is the largest seed company in the world.

Monsanto introduced Roundup Ready soy technology in 1996. Roundup Ready crops can tolerate sprays of Roundup, a glyphosate-based herbicide. The technology has become the basis for many key crops, including corn, alfalfa, cotton, canola and sugar beets.

The two companies are known for their disputes, both in the marketplace and in court, but Monsanto’s Partridge said Tuesday that the companies have agreed to try to improve the relationship in the future.

“We don’t want to have a fight in court,” he said. “We need to compete vigorously with our product offerings and let farmers choose.”

DuPont shares fell 0.4% to $48.88 in afternoon trading, while Monsanto rose 4.3% to $103.63. Reuters