Monsanto seeks successor, may face more upheaval (20/12/2002)

20 December 2002


The usual puff piece from Monsanto's home town rag in item 2, which contrasts markedly with item 1:
1.Monsanto Seeks Successor, May Face More Upheaval
2.Monsanto programs started by Verfaille will go forward


1.Monsanto Seeks Successor, May Face More Upheaval

Staff Reporter of THE WALL STREET JOURNAL, December 19, 2002

Hendrik A. Verfaillie resigned as chief executive and president of Monsanto Co., signaling more upheaval at the St. Louis crop-biotechnology company, which is struggling against consumer unease with genetically modified food.

A successor hasn't been named for Mr. Verfaillie, 57 years old, whose surprise departure was disclosed in a terse statement after a regular meeting of Monsanto's directors. Monsanto Chairman Frank V. AtLee, a longtime chemicals-industry executive, is serving as interim CEO while the board searches for a successor for Mr. Verfaillie, a chemist from Belgium who rose up through the ranks to become chief executive in February 2000.

Mr. Verfaillie was put in charge of Monsanto after the company, weakened by a spending spree on crop-biotechnology and seed companies, was acquired by Pharmacia Corp. The drug company kept Monsanto's highly profitable pharmaceuticals business and finished spitting out the agricultural operations in August. Monsanto's crop-biotechnology business, which swept across the American farm belt in the late 1990s, has since lost steam as consumers and regulators in important markets such as the European Union and Brazil put up barriers to using Monsanto's genetically modified seeds.

A number of recent missteps by Mr. Verfaillie's team have angered Wall Street investors, who have seen their Monsanto stock fall by half of its value during the past year. Monsanto, the world's biggest crop-biotechnology firm, had to slash its earnings outlook twice this year due to, among other things, a weak economy in Argentina and a Midwest drought that depressed farmer demand for its Roundup weed killer.

In October, a forecast released by Monsanto indicated a raft of charges will probably result in a net loss of roughly $1.7 billion for 2002. At the start of the year, Monsanto's management thought the company would probably earn about $2.25 a share, excluding any charges.

In a sign of the directors' displeasure with Mr. Verfaillie, who reaped $1.2 million last year in salary and bonus, the company announced that it will seek its next CEO from outside Monsanto, passing over logical candidates from within the company such as 44-year-old Chief Operating Officer Hugh Grant, who oversees Monsanto's world-wide business operations.

Messrs. Verfaillie and AtLee didn't return phone calls seeking comment. A statement released by Monsanto 2* hours after its initial announcement indicated the board doesn't intend to make any big changes to Monsanto's strategy of selling around the world a handful of genetically engineered seed, including corn, soybeans, cotton, and eventually wheat.

"Hendrik and the board agreed that the company's performance during the past two years has been disappointing," said Mr. AtLee in the prepared statement.

In 4 p.m. New York Stock Exchange composite trading, Monsanto dropped $1.19 to settle at $19.02 a share.

Mr. Verfaillie's departure will likely fan continued takeover speculation about Monsanto, which has a $4.9 billion market capitalization.

Some Wall Street analysts say Monsanto stock is trading far below its acquisition value, based on the price of other recently acquired agricultural concerns.

During 2001, Monsanto generated net income of $295 million, or $1.12 a share, on sales of $5.5 billion.


2.Monsanto programs started by Verfaille will go forward

12/19/2002 09:28 PM

Monsanto Co. will continue sowing the genetically modified crops germinated by Hendrik Verfaillie, who resigned Wednesday, said Frank AtLee III, chairman and interim chief executive.

AtLee, 62, joined Monsanto two years ago with little knowledge of plant biotechnology, but he fervently speaks of its scientific and social potential now.

"We have a chance to change the world with this technology. This company is great, and the strategy is great, and we're going to keep going with it," he said Thursday from his home in Scottsdale, Ariz. "We have the ability to get more nutritious food and make more of it and really (remedy) the nutritional shortages that exist in the world."

On that point, AtLee and Verfaillie clearly agree.

Verfaillie, a plant scientist from Belgium, joined Monsanto 26 years ago and long championed the development and spread of genetically modified crops around the world.

Yet Verfaillie, 57, was ousted from the company with a speed that stunned friends and former colleagues.

"I'm shocked about the way it happened - (by) the thought that the CEO would come to a board meeting with no prior knowledge, and at the end of the board meeting, he's gone," said Nick Reding, a retired Monsanto vice chairman who said he heard the account from Verfaillie.

"My experience is that that is very, very unusual. It creates a lot of uncertainty (for the company), and I would think that would be a concern right now," he said.

Verfaillie did not return calls seeking his comment.

Monsanto said in a statement that his resignation was the result of a mutual decision and that "there was no impropriety involved."

AtLee declined to comment on the departure or plans for finding a successor. And he, like many industry analysts and observers, was full of praise for the former CEO.

Verfaillie's "career is exemplary in this industry, and he's brought this technology to where it is today," AtLee said. "His contribution has been tremendous."

So why did Verfaillie go?

Former Monsanto executives say the scales tipped against him in the constant balance between developing a long-term technology and meeting shareholders' short-term financial expectations.

Monsanto lost $1.75 billion in the first nine months of the year, versus a profit of $399 million for the same period last year. It warned in October that it would not meet prior expectations for the year, despite cost-cutting that included eliminating about 700 jobs in April.

Its problems stemmed from last summer's drought, which dried up demand for Roundup herbicide, and from political and economic conditions that hurt customers in Argentina and Brazil.

Also, the European Union continues to resist genetically modified crops, citing safety and trade concerns. That has blocked Monsanto from a potentially lucrative market.

"There's been two bad years in a row, from a lot of things that have been out of the control of the CEO," said Michael Zbinovec, associate director of Fitch Ratings Inc., which assesses companies' financial strength. "I'm sure the board looked at all of this and decided, for performance reasons, to let him go."

Yet many praised Verfaillie for lowering the price and broadening the market for Roundup herbicide, helping to win it a strong continued market share after the company's patent protection expired in 2000.

He also won kudos for the Monsanto pledge, which promised openness and shared information for agricultural stakeholders around the world. Having grown up in Europe, he understood the culture and closeness to food that led to genetically modified crop resistance there and had begun negotiating around it.

"He had a long view of where the company is going - and success in biotechnology is going to require a great deal of patience. We knew that from the beginning," said Virginia Weldon, a former Monsanto senior vice president.

"The board is taking a short-term view, and that's the board's prerogative. They have a responsibility to the shareholders, and my conjecture is that they believed that they were fulfilling that responsibility," Weldon said. "(But) Hendrik has done a splendid job and made a great deal of money for the company and the shareholders through his creativity and ingenuity."

Richard Mahoney, who retired as chairman and chief executive of Monsanto in 1995, said he, too, struggled to balance long-term goals with short-term demands. The company embarked on costly research and development of genetically modified crops under his tenure, knowing that it would be about 15 years before financial rewards would be realized.

But he also headed Monsanto when it included a pharmaceutical division, now part of Pharmacia Corp., and a chemicals business that was spun out as Solutia Inc. That diversity gave him greater flexibility.

"If the weather was bad in the agriculture business, then maybe they were making more cars (that used chemical products) . . . so we did quite well with the shareholders, and they were quite happy," Mahoney said. "The company is much more narrowly focused now . . . and there isn't a whole lot of room" for failure.

Monsanto has been an independent agrochemical and plant biotech company only since August - not enough time for the rewards of Verfaillie's long-term plans to be realized, industry analysts said.

Some speculate that the depressed price of Monsanto's shares - which closed at $18.48 Thursday, less than half the price of a year ago - has made the company ripe for acquisition. If Verfaillie rejected going in that direction, it could have caused a rift with the board.

But Reding said Verfaillie wouldn't have resisted any change that was good for the company, its employees and greater St. Louis.

"He's a brilliant strategic thinker, and he has to have been looking at every alternative for the future, including a merger or acquisition. And the fact that something hasn't happened means he thought it wasn't right," Reding said. "If he thought it were the right thing, he'd have been doing it . . . irrespective of what it meant for him personally."

Verfaillie, a patron of St. Louis arts and champion of civic causes, has not commented on his departure or future plans. Community leaders said they hope he will stay in town and remain active.

Analysts speculated over a permanent replacement at Monsanto. The company said it plans to conduct an external search.

However, John Moten, an analyst with Deutsche Bank in New York, said he sees good candidates inside the company: Hugh Grant, now executive vice president and chief operating officer, and Robert Fraley, executive vice president and chief technology officer.

Together with Verfaillie, "they really created the company and made it a leader in biotech," he said.

Reding said he suspects Verfaillie had a succession plan that involved Fraley and Grant - "but he wasn't ready to invoke it yet. He wanted some more time."

Many of the plans Verfaillie put in place will continue. Monsanto has invested too much in GM crops and biotechnology - and in the St. Louis community - to turn back now, its former leaders said.

"There's a lot of momentum in place that will accrue to whoever follows (Verfaillie). Somebody will get credit for it," Mahoney said. "Whoever follows him will be a net gainer as opposed to a net loser."


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