Monsanto’s Pain is Buyout Pros’ Gain –

Monsanto Co.’s loss looks like pure gain for a host of buyout firms involved in a recent deal-making binge.

Capitalizing on Monsanto’s need to reduce its debt, at least four private equity groups – Lehman Brothers, J.W. Childs, MSD Capital and Pegasus Capital Advisors – in the last few weeks have acquired or agreed to acquire divisions of the foundering company before it completes its merger with drug-maker Pharmacia & Upjohn later this month.

In separate deals worth a total of approximately $1.7 billion, Lehman’s private equity division has agreed to acquire Monsanto’s food gums business, J.W. Childs is looking at its sweetener ingredient business, and MSD Capital and Pegasus have formed a new company out of its tabletop sweetener unit.

The sale of the businesses are part of Monsanto’s plan to sell assets that are not core to the company’s long term plans. The pharmaceutical and agriculture company announced its restructuring plan last July and its shareholders approved a merger with Pharmacia & Upjohn in March that will create the nation’s 11th-largest drug company.

In terms of size, Lehman’s agreement to purchase Monsanto’s food gums business for $685 million is the largest of the three deals.

Should the deal close, Lehman will combine the company, Kelco, with another food gums business owned by Hercules Inc., one of its investment banking customers.

Alberto Finali, a managing director at Lehman, said this is a joint transaction between his firm and Hercules that will result in Hercules owning a 28% stake of the combined food gums entity.

Technically, Lehman will invest $300 million in equity in the joint venture for a 72% stake. Hercules will receive $430 million in cash and its stake will be worth $120 million. The balance will be a mix of senior and subordinated debt provided by Lehman and a syndication of banks.

Hercules tried to buy Kelco back in 1995, but lost the bid to Monsanto. This go-around, Hercules could not afford the purchase price on its own and enlisted Lehman to acquire the bulk of the company instead, Finali said.

The transactions were financed with a substantial amount of equity because the companies are capital intensive, Finali said.

The deal is expected to close in May.

How Sweet It Is

Last week, J.W. Childs agreed to purchase Monsanto’s sweetener ingredient business for $440 million.

Partners at the Boston-based firm could not be reached for comment by press time.

Included in the sale are the NutraSweet brand and Neotame product, which is not yet in the marketplace.

Neotame is Monsanto’s new ultra-sweet product, which reportedly is 8,000 times sweeter than sugar. It has yet to receive regulatory approvals.

J.W. Childs has several other holdings in food companies, including Empire Kosher Poultry, the nation’s largest kosher chicken and turkey processor, and Chevy’s, which operates 143 Mexican-style restaurants.

Partners at J.W. Childs also worked on deals with Snapple Beverage Corp. and General Nutrition Companies while at Thomas H. Lee Co. in the mid-1990s.

In conjunction with this deal, Monsanto has agreed to sell its equity interest in the European rights to NutraSweet AG and Euro-Aspartame SA to Japan’s Ajinomoto Co.

The American and European wings of the sweetener ingredients business had annual sales of approximately $1 billion.

Dell-icious

At the end of March, MSD Capital, the investment firm set up by Dell Computer titan Michael Dell, together with Pegasus Capital Advisors, purchased Monsanto’s tabletop sweetener business for $570 million.

Upon completion of the transaction, the investor group formed a new company called Merisant, which will manufacture and market sweetener brands, including Equal and Canderel, which were Monsanto’s two name-brand products.

Merisant will employ approximately 650 people worldwide and anticipates $1.2 billion in revenue this year.

With a 37% share of the market, Equal currently leads the $260 million tabletop sweetener business, followed by Cumberland Packing Co.’s Sweet n Low brand.

Merisant will work to develop new marketing strategies for its brand and increase market penetration among young adults and baby boomers, said Arnold Donald, the company’s chairman and chief executive.