Viewpoint -- Some Mergers Live Unhappily Ever After

Dec. 21, 2004
What seems like a perfect union may turn into a nightmare.

The announcement of Suiza Foods' planned buy of competitor Dean Foods was made with the predictable optimism. The upbeat tone offered by Gregg Engles, Suiza's CEO, and Howard Dean, Dean Foods' CEO, is the same thing that has played out innumerable times across the food and agribusiness sectors in recent years. Change the names and you'd still have the same heady optimism offered by numerous companies who have headed to the marriage altar in recent years. But like the romantic unions to which they are sometimes compared, all trips to the altar don't produce a happy ending. Sometimes, as in the case of Tyson's recent decision to terminate its planned buy of beefpacker IBP, the deal doesn't close. In other cases, the deal closes only to find out that just maybe its participants would have been better off to go it alone. A look at some agribusiness sector mergers and acquisitions that did not turn out quite the way the key players expected: New Holland Catches A Case There's an old sports saying regarding trades that suggests sometimes the best deals are the ones you don't make. It seems both of these companies might have been better off without this deal. So far the formation of CNH Global has been arguably the worst agribusiness sector merger in recent history. From the start, industry giant Deere & Co. was moving aggressively to capitalize on uncertainty surrounding the fate of myriad brands and numerous implement dealers uniting under the CNH banner. Which would go? Which would stay? Well, to put it bluntly, the customers were the ones to go. They went to Deere, which saw its share of the North American farm implement market grow beyond an already dominant position thanks to an aggressive marketing push. A year after the 1999 merger, CNH appointed a new chief executive and chief financial offer with ties to Fiat, the Italian auto giant that held a controlling stake in New Holland and continues to own much of CNH. Both men replace individuals who came to CNH from Case. But so far the shift has brought little relief for shareholders, who have seen CNH stock repeatedly tag all-time lows in recent months. IMC Global Gets Salty Last month Douglas Pertz, chief executive of fertilizer giant IMC Global, conceded something that was pretty obvious to investors: His company probably paid too much for Harris Chemicals Group in 1998. The comment came as Pertz told an analyst and investor conference that the company hopes to sell much of what it acquired in the Harris buy before the end of the year. IMC paid $1.4 billion for the privately held company and announced soon after it was looking to sell the chemicals unit. A deal that would have unloaded the soda ash and boron operation, however, fell apart in early 1999. Then, in February 2000, with the chemicals unit still unsold, IMC said it was exploring strategic options for the salt unit also acquired in the Harris deal. Six months later, IMC said it would likely not be able to sell the units for the $1 billion price tag it then sought. In his recent presentation, Pertz, who was not CEO at the time of the buy, said the salt unit hopefully would be sold sometime around midyear while the chemicals unit likely would be sold in pieces. The company continues to expect a sale price below the original $1 billion target and the salt unit divestiture will likely be earnings dilutive. Du Pont Goes To Seed Certainly, chemical giant Du Pont's buy of seed maker Pioneer Hi-Bred does not classify as a failure. But neither is it generating a lot of excitement. At a time when the farm sector saw genetically modified seeds as the path to a utopian future of healthy meals for a well-fed planet, Du Pont paid $7.7 billion to buy 80% of the seed marketer it didn't already own. In a recent earnings report Du Pont said it expects the business to face a difficult agricultural economy and that it sees a negative operating outlook for the segment in 2001. But beyond exposing Du Pont to the sometimes bumpy farm economy, the chemicals giant finds itself with a toe in the morass of genetically modified foods -- an area that's continually in the crosshairs of environmental activists. It's also an arena where all the key players seem to have lawsuits against everybody else relating to such patent law minutia as gene traits and germplasm. The genetically modified foods outlook could very well change, but it might not be for a long while. Tyson Chickens Out Of The Sea Assuming the Tyson and IBP saga still has a few chapters left to be written, let's go back a few years to the poultry giant's foray into seafood. The company that has dabbled in almost everything, including retail outlets called "Chicken Huts" in the late 1960s, spent part of the 1990s fishing for part of its business. Tyson bought Arctic Alaska Fisheries Inc. and Louis Kemp in 1992, and by early 1999 it was looking for a way out. That decision came after the business, along with a pork production unit, generated a mere 5% of the company's fiscal 1998 revenues. Combined, the businesses were "more trouble than they are worth," one analyst said at that time. By May 1999 Tyson sold the seafood business, which included everything from ships to fishing rights to processing plants, in two separate deals. Tim Todd is a writer for BridgeNews

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