Deciding between corporate development strategies: Monsanto's march into biotechnology

Résumé du document

A strategic alliance is a collaborative agreement (or several agreements) between two or more firms, which contribute resources to a common endeavor of potentially important competitive consequences, while maintaining their individuality (Gulati, 2001)

Monsanto is a relatively new company. While they share the name and the history of a company that was founded in 1901, the Monsanto of today is focused on agriculture and supporting farmers around the world in their mission to feed, clothe and fuel our growing world. They are an agricultural company. Monsanto Company was first incorporated as a subsidiary of Pharmacia in 2000, and then spun off as a separate company in 2002.

The fund-raising environment is likely to remain strong for both small and larger cap companies, due to mergers and acquisition (M&A) activity and relatively low interest rates

Extraits

[...] Louis Conditional M&A Only look to merge or acquire when: Redundant resources can be eliminated and the combined organization can be leaner and more efficient that two standalone entities High relative value of soft to hard resources High degree of market uncertainty Strong competition Monsanto's Acquisition of Searle Helped achieve the critical size of billion to be a real player in the industry Access to a highly profitable, established distribution system But: Downgrading in Monsanto's credit rating Unexpected tunrover of Searle's executive causing management challenge Redundant but unsalable biotech pilot plant Types of Synergies Three types of interdependencies: Modular non-equity alliance Sequential customization, equity based alliances Reciprocal M&A for long-term cooperation and knowledge sharing Degree of Management Control Internal tensions perspective (Das & Teng, 2000) Cooperation vs. Competition Rigidity vs. Flexibility Short Term vs. Long Term Orientation Non-equity Alliances Mergers and Acquisitions But: Collaboration capabilities and experience? [...]

[...] Application What development strategy should Monsanto adopt to commercialize its breakthrough in genetic engineering crop seeds ? License the tech to a seed company - Monsanto's revenues would depend on the seed company's performance - Need to transfer know-how and train the other company's staff - Shared the benefits from the invention Acquire seed companies - No expertise in this business - Complexity and uncertainty of the M&A process - Cost Set up their own - Require time and huge investment in financial and human capital - No expertise in this business Focus on Biotech Monsanto's possible applications of Biotechnology Plant Agriculture Animal Agriculture Pharmaceuticals Many risks to consider Plant Agriculture Market Potential Genetic engineering leads to new crops that would be insect resistant and disease resistant No one had ever made a business of genetically engineering crop seed before Licensing technology was most appealing, however would require extensive work with the seed companies Some Farmers still leery of bio-engineering processes and would need a large amount of consumer education Risks Animal Agriculture Market Potential Therapeutic proteins could prevent animal diseases as well as enhance natural animal characteristics Stringent FDA approval was required Could negatively affect current industry economics Anti-biotechnology activists might arouse consumer concerns about the use of hormones Selling these product directly to farmers would require a new distribution system Risks Pharmaceuticals Market Potential Biotechnology could produce proteins in quantity for use directly as drugs (such as insulin or interferon) Exploitation would require the acquisition of an established pharmaceutical company Most proteins could not be ingested but had to be injected Risks Monsanto Today Monsanto is a relatively new company. [...]

[...] Deciding Between Corporate Development Strategies Monsanto's March into Biotechnology Agenda Firm Profile Development Strategies 1. In-house 2. Alliance & Licensing 3. M&A Focus on Biotech 1. Plant Agriculture 2. Animal Agriculture 3. [...]

[...] Pharmaceutical Monsanto Today Future of Biotech Conclusion Discussion Growing In-House Recruiting talent The firm's reputation & past down-sizing programs Fear of economic downturn The executives' networks in the scientific/academic community Takes time Huge investment of human and financial capital Strategic Alliances A strategic alliance is a collaborative agreement (or several agreements) between two or more firms, which contribute resources to a common endeavor of potentially important competitive consequences, while maintaining their individuality (Gulati, 2001) Increased number Annual increase in number of approx since 1987 (Harbison & Pekar, 1998) Average number of publicly announced alliances of Fortune 500 company in period 1978-1994 was 24 (Nohria, 1996); in 2000 this was more than 70 A typical large company forms about 60 new alliances each year (Accenture, 2002) Effect on corporate and overall industrial performance In 2004, a top 1000 company generated 40% of its sales through alliances (1995: ROE of companies most active in alliance is 40% higher than average (Harbison & Pekar, 1998) Alliances account for 16-25% of median company market value; for the top quarter this is 40% (Accenture, 2002) Types of Alliances: Alliances are: Joint ventures Minority equity investments Non-equity investments Co-marketing agreements Co-development agreements R&D partnerships Consortia Alliances are not: Arms-length supply arrangements Overseas and local subsidiaries Mergers and Acquisitions (Cross-) Licensing Franchising Diffusion of strategic alliances is mainly motivated by Economic factors: Technology factors: Governance factors: Globalization (Automotive) Convergence & Standards (IT & Telecom) Liberalization & Deregulation (Airlines & Telecom) Experience factors: Fashion factors: Alliance learning curve (Biotech) FADS! What's new? Centrality to firm strategy Number of partners involved Uncertainty in resources and environment Degree of complexity of products Increasing coopetition Management / Governance problems A firms critical resources may span firm boundaries and may be embedded in interfirm resources and routines. Four potential sources of interorganizational CA are: 1. relation specific assets 2. knowledge sharing routines 3. [...]

[...] The fund-raising environment is likely to remain strong for both small and larger cap companies, due to mergers and acquisition activity and relatively low interest rates Future of Sub-Industry Neutral on the 12-month fundamental outlook for the fertilizers & agricultural chemicals industry The S&P Fertilizers & Agricultural Chemicals Index declined year to date, versus a decrease of for the S&P 1500 Composite Index, reflecting, in our view, caution regarding Monsanto Our hold recommendation on MON is based on the strong product pipeline we see, tempered by our concerns relating to its premium valuation versus peers Summary & Conclusion Growing In-House requires substantial time and capital Strategic Alliances are key to Monsanto's future success and development Use M&A only when market conditions permit and in conjunction with established corporate competitive advantage Licensing and strategic alliances in plant and animal agriculture most suitable for Monsanto Discussion Which strategy is best for Monsanto? What have other competitors chosen to do? Monsanto Annual Reports and Investor Presentations Genentech Annual Reports and Investor Presentations T. K. Das & B.-S. Teng, "Instabilities of Strategic Alliances: An Internal Tensions Perspective", Organization science Hamel, Competition for Competence and Inter-Partner Learning Within International Strategic Alliances. [...]