Though not widely reported, some media stories suggest that Monsanto Company (MON) is acquiring an Israeli-based, Tel-Aviv Stock Exchange listed, crop Bioengineering start-up Rosetta Green Ltd. for $35 million.
Rosetta Green was in discussion over a strategic cooperation understanding with the global seed company for some time now. Monsanto eventually made the decision that a cooperation agreement was not enough, and decided to purchase the company in full. Monsanto is pursuing the deal through A.B. Seeds, a fully held subsidiary.
Rosetta Green employs proprietary microRNA (miRNA) engineering to enhance crop quality. Its enterprise model is based on the sale of proprietary know-how about a particular gene, its sequence, and expression to seed companies. The seed companies then analyze the gene on various crops, and if they eventually use the gene in seeds they produce, they pay a share to Rosetta Green resulting from their profits. It has signed contracts for improved corn and soybean seeds that are drought immune, and for a higher yield beet sugar.
In December 2011, it signed an agreement with DuPont (DD) which included, in addition to testing crop characteristics, guaranteed future payments if the drought and salinity resistant corn and soybean seeds were effective.
In April 2012, Rosetta Green agreed upon a similar agreement with Bayer (BAYRY.PK) Cropscience. The contract is potentially worth hundreds of millions of dollars, nevertheless it doesn't involve any considerable advance payments or investment in Rosetta Green's R&D.
The actual backers powering Rosetta will benefit handsomely from the takeover. Its principal shareholders are Plan B, which is an alliance between Mark Gelfand and Barbara Goldman, who hold 40% of the company. Another major shareholder is Alex Rabinowitz, who holds 28.4% of the shares. In December 2011 they took advantage of the financial distress of the parent company, Rosetta Genomics (ROSG), and acquired 50.03% of the Rosetta Green shares from it for just less than a million dollars.
When Monsanto reported its first quarter earnings in January, results showed that the seed giant made $340 million or $0.62 per share in profits, well above the Wall Street consensus of $0.37. It also raised the full year outlook to $4.40, compared to a previous guidance of $4.32. The prior quarter results showed weak financial results in a loss per share of $0.44. Despite the weak quarter, fiscal year 2012 showed positive growth with full year earnings at $3.70 versus 2011 at $2.96.
Going forward, most of the company's growth will come from Asia and Latin America, because of population growth and rise in income levels. The agricultural company also expects to see better penetration in South America, with the development of its corn and soybean seed technologies. Total planted acres in the U.S. might remain unchanged, but what should help Monsanto in increasing revenue, is transitioning to seeds with increased efficiency.
To achieve this efficiency, Monsanto invested $35 million in Evogene (EVENF.PK), which offers a complete solution for plant trait improvement through combining state-of-the-art biotechnology and advanced breeding methods. Monsanto owns 8.72% of the company, has financed tens of millions of dollars in R&D, and has exclusive rights to a large number of crop and traits. The Rosetta Green's acquisition will therefore further strengthen the Monsanto position as an industry leader in biotechnology and fertilizer development for the agricultural sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.