M&A Roundup – Trying to Recoup the Cost Of Lost Opportunities: Jilted Delta & Pine Land Wants Monsanto To Pay More for Their Broken Deal

If their broken-deal lawsuit gets to trial, Delta & Pine Land Co. and Monsanto Co. may be slugging it out under a relatively novel economic concept seldom, if ever, tested in the courts. At least part of the allegations brought by Delta & Pine in a complaint seeking up to $1 billion in damages from former merger partner Monsanto appears to hinge on opportunity cost, a well-established economic doctrine but largely unsettled in legal terms. Under the concept, a business loses the chance to create value or obtain other benefits by delaying actions or not making decisions at the earliest possible time. Legal experts said they could not recall cases in which opportunity cost damages were central to a case. While not specifically citing opportunity costs, Delta & Pine noted it was hurt because its stock had plunged during the 19 months in which the deal hung in regulatory limbo after being announced in May 1998 and that it had passed up an acquisition bid from another unidentified company before accepting the Monsanto offer, initially valued at nearly $1.8 billion. Scott, Miss.-based Delta & Pine filed the suit against Monsanto in Bolivar County, Miss., in January, about a month after the St. Louis-based biotechnology seed company withdrew the filing seeking clearance of the deal from the Antitrust Division of the U.S. Department of Justice. The suit specifically demands compensation for damage to Delta & Pine’s customer relationships and for the diversion of its management’s time to the unsuccessful merger. In January, Monsanto agreed to a $50 billion merger with Pharmacia & Upjohn Inc., one of several giant consolidations in the pharmaceuticals and biotech fields. If the case is not settled, the combined organization will inherit defense of the Delta & Pine suit. According to Delta & Pine, a major producer of cotton seeds and soybean seeds, Monsanto did not use “commercially reasonable efforts” to respond to Antitrust Division inquiries and speed up the case. Monsanto described the suit as “without merit” and insisted it worked hard to expedite the regulatory review and work out a compromise. Company spokesman Dan Verakis said that his firm was intent on getting the deal through but pulled the approval request when the Antitrust Division insisted that Monsanto assign its cotton seed technology to other companies in return for approval. “That would have put us at an unfair competitive disadvantage,” he said. The agreement to acquire Delta & Pine, with a nearly 60% share of cotton seed sales to farmers, followed a number of other high-profile seed acquisitions by Monsanto and stoked antitrust concerns about the St. Louis company’s potentially dominant position in cotton seeds. On a broader basis, antitrust attorneys said the case signaled that the Justice Department and Federal Trade Commission (FTC) are getting tougher to convince as deals get larger and more complex and wield greater competitive consequences. They are, in fact, counseling dealmakers to get used to a longer screening. “Anybody who does a larger transaction with up-front competitive consequences must build the delay into the deal timetable,” said Randall Allen of Alston & Bird in Atlanta. “Otherwise you are fooling yourself.” Laura Wilkinson of the Washington office of Clifford Chance Rogers & Wells said that dealmaking clients are being advised not only to expect delays but compromises and to determine in advance the “parameters at the bottom line that both sides can live with.” “We counsel clients that the agencies are being more enforcement-minded and may be requesting more information than the companies have foreseen,” she said. Prior to the complaint, Monsanto had tried to assuage Delta & Pine by paying an $81 million broken-deal fee and reaching new licensing agreements with the Mississippi firm for the use of Monsanto’s technology. The lawsuit is not expected to affect these agreements.