DuPont will pay Monsanto at least US$1.75 billion in a new licensing deal as part of an agreement which also dismisses the rivals' bitter legal battles over rights to technology for genetically modified seeds, the world's top seed companies said Tuesday.
The deal tosses out a $1 billion jury verdict DuPont was ordered to pay Monsanto last August (all figures US$). Instead, the companies agreed that DuPont would make at least $1.75 billion in royalty payments over several years in exchange for broad access to develop products using Monsanto's leading genetic technology.
The companies agreed to drop antitrust and patent claims against each other while forging the new collaboration.
DuPont officials said the agreement was a win for shareholders and sets up its DuPont Pioneer agricultural seed unit for future growth.
"This is a smart deal for DuPont," Paul Schickler, president of DuPont Pioneer, said in an interview. "We've got access to two additional technologies that we can now combine with our existing technologies as well as the technologies that are in our pipeline."
DuPont Pioneer will have broad rights to key new technology that include stacking of traits, Schickler said.
Monsanto, which generates revenues both through seed sales and licensing of its genetic seed technology to other companies, said the deal should bring in far more than the minimum $1.75 billion as DuPont pushes the company's technology through its broad customer base.
"We would expect them to move past those minimums pretty swiftly and significantly. They were and are the largest soybean company in the world, the United States for sure," said Scott Partridge, vice-president of strategy for Monsanto. "We are pleased to have them again as a customer for our newest technology."
Under the agreement, which Schickler said came together over the last week, DuPont is to make four annual fixed royalty payments totaling $802 million to Monsanto from 2014 to 2017.
Beginning in 2018, DuPont will also pay royalties on a per-unit basis for Genuity Roundup Ready 2 Yield soybean technology and Genuity Roundup Ready 2 Xtend for the life of the agreement in exchange for continued technology access. Annual minimum payments through 2023 will total $950 million.
DuPont can start testing Monsanto's material in the field this year and will be able to sell Roundup Ready 2 Yield in 2014. And if regulatory approvals are in place, DuPont will be able to start selling the Xtend product in 2015, according to Schickler.
Pioneer will integrate the technology into its own seed germplasm over time, he said.
BGC Partners analyst Mark Gulley said the deal appears to be a win for both companies, notably for DuPont which has converted its legal liability for the $1 billion jury award into royalty payments.
"Monsanto gets a nice royalty stream and DuPont gets to remove this cloud over the stock in terms of a contingent liability," he said.
Access to Xtend is key as it is seen as part of a next wave of herbicide-resistant crop technology aimed at dealing with a wave of herbicide-resistant weeds spreading across U.S. farmland.
The settlement comes after a jury in the U.S. District Court in St. Louis last year agreed with Monsanto that DuPont and Pioneer violated a licensing agreement for use of the Roundup Ready trait by trying to stack several traits together.
DuPont was pursuing a separate case against Monsanto, alleging anti-competitive behaviour, and a hearing in that matter was set for this autumn. But under the settlement, each side is dropping its claims against the other.
Both DuPont and Monsanto hold strong positions in the U.S. seed industry. They and other competitors have been racing to develop improved crops through genetic modifications and other means.
The two have been notorious for their battles, both in the marketplace and in the courtroom, but Monsanto's Partridge said Tuesday that the companies had agreed to try to improve relations going forward.
"We do not want to have fights in the courthouse," he said. "We need to compete vigorously with our product offerings and let farmers choose."
-- Carey Gillam covers agricultural markets and agribusiness for Reuters in Kansas City.