Replies to post #6772 on The Rising Influence of Rising Affluence

[DewDiligence]

Clarification re DD/MON settlement: $1.75B represents the minimum amount of cumulative royalties DD will pay MON; however; the portion of the royalty stream in 2018 and beyond is calculated on a per-unit basis with a floor. In all likelihood, DD’s sales of the products in question will exceed the numbers of units implicit in the minimum-royalty schedule, and hence MON’s cumulative royalties under this agreement will likely exceed $1.75B.

[DewDiligence]

Based on solid FY2Q13 results, MON raised FY2013* non-GAAP EPS guidance to $4.40-4.50 from the prior range of $4.30-4.40; this is the second time MON has raised the range during the current FY (it was originally $4.18-4.32):

http://finance.yahoo.com/news/monsanto-companys-global-business-performance-120000022.html

In part, these raises are the result of deliberate lowballing; however, MON’s performance during the FY to date really has been better than originally expected.

*Ending 8/31/13.

[DewDiligence]

MON—On the FY2Q13 CC last week, the executives were plainly more confident than they have ever sounded at an investor presentation, which I attribute to the landmark settlement with DuPont last month (#msg-86130866, #msg-86136091, #msg-86139200).

I consider the MON-DD settlement analogous (on a somewhat smaller scale) to the DoJ’s termination of the longstanding antitrust suit against IBM in 1982. When DoJ finally dropped that case against after 13(!) years, it freed IBM to pursue its business objectives more aggressively, and the shareholder value has appreciated accordingly.

MON’s long-term guidance has been for annual (non-GAAP) EPS growth in the mid-teens; however, in light of the DuPont settlement, I think MON can probably grow somewhat faster than that.

Comments?

[DewDiligence]

MON—Freed from the antitrust straightjacket (#msg-86130866), MON strikes another business-development deal, collecting what may be assumed to be large royalties from Bayer for access to MON’s latest-generation soybean technology (including stacking rights):

http://finance.yahoo.com/news/bayer-cropscience-monsanto-enter-cross-130000785.html

Bayer CropScience and Monsanto Company have entered into a series of licensing agreements for next-generation and enabling technologies… Monsanto will provide Bayer CropScience with a royalty-bearing license to Genuity Roundup Ready 2 Yield and Genuity Roundup Ready 2 Xtend technology in soybeans in the United States and Canada. Bayer CropScience also will receive a royalty-bearing license to Intacta RR2 PRO in soybeans in Brazil with an option to a royalty-bearing license in other Latin-American countries in the future. Bayer CropScience has also been granted stacking-rights under certain conditions.

MON also licensed from Bayer some technology for corn-rootworm control and herbicide tolerance, but that's a sideshow compared to the above.

This is the second significant deal MON has inked in the three weeks since the DuPont settlement on 3/26/13—the first one was with Dow on 4/11/13 (#msg-86731676). In the post on the Dow deal, I questioned whether the timing of the deal so soon after the DuPont settlement was coincidence; now, in light of today’s deal with Bayer, I think it’s obvious that the timing was not a coincidence.

The IBM analogy in #msg-86130866 may seriously be valid.

[DewDiligence]

The premise for owning MON was well-covered in the 5/8/13 presentation at the Wells Fargo conference by Kerry Preete (EVP, Global Strategy):

http://cc.talkpoint.com/bern001/052913a_ad/?entity=24_57Q2MFV

The webcast slides (http://cc.talkpoint.com/well001/050813a_hr/?entity=11_VC4QIBR ) have unduly busy graphics, IMO, so I recommend just listening to the audio, which has plenty of detail.

[DewDiligence]

MON, DD settle dual patent lawsuits:

http://finance.yahoo.com/news/dupont-monsanto-reach-settlement-litigation-190000536.html

DuPont (DD) and Monsanto Company (MON) announced today that they have agreed to settle and dismiss their respective patent infringement lawsuits pending in U.S. District Court in St. Louis. The litigation related to claims by Monsanto that DuPont had infringed certain Monsanto seed chipping patents and claims by DuPont that Monsanto had infringed certain DuPont patents related to seed processing. Terms of the settlement are not being disclosed.

These lawsuits were separate from the ones in the large settlement between the companies announced in Mar 2013 (#msg-86130866).