Filed by Monsanto Company
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Monsanto Company
Commission File No. 001-02516
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following information has been provided to aid you in your analysis of
the financial aspects of the merger. This information was derived from the
audited consolidated financial statements of each of Monsanto and Pharmacia &
Upjohn for the years 1996 through 1998 and the unaudited consolidated condensed
financial statements of each of Monsanto and Pharmacia & Upjohn for the nine
months ended September 30, 1999. The information is only a summary and should be
read together with the historical financial statements and related notes
contained in the annual reports and quarterly reports and other information that
we have filed with the SEC and incorporated by reference.
POOLING OF INTERESTS ACCOUNTING TREATMENT
The merger is expected to be accounted for as a "pooling of interests." This
means that, for accounting and financial reporting purposes, the companies will
be treated as if they had always been combined. We have presented unaudited pro
forma condensed combined financial information that reflects the pooling of
interests method of accounting to provide a picture of what the businesses might
have looked like had they always been combined. The pro forma condensed combined
statements of income and pro forma condensed combined statement of financial
position were prepared by combining the historical amounts of each company. The
companies would have performed differently had they always been combined. You
should not rely on the unaudited pro forma condensed combined financial
information as being indicative of the historical results that would have
occurred or the future results that will occur after the merger.
PERIODS COVERED
The following unaudited pro forma combined condensed statement of financial
position as of September 30, 1999, is presented as if the merger had occurred on
September 30, 1999. The unaudited pro forma combined condensed statements of
income for the nine months ended September 30, 1999, and for the years ended
December 31, 1998, 1997 and 1996, are presented as if the companies had always
been merged.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
----------------------- ----------- -----------
<S> <C> <C> <C> <C>
PHARMACIA
MONSANTO & UPJOHN
-------- --------
Net Sales.................................. $ 6,804 $ 5,310 $12,114
Costs, Expenses and Other:
Cost of Goods Sold....................... 2,450 1,421 3,871
Selling, General and Administrative 2,107 2,019 4,126
Expenses.................................
Research and Development ................ 1,008 1,050 2,058
Amortization of Intangible Assets........ 259 68 327
Restructuring, Merger and Special
Charges.................................. 10 32 42
Interest Expense......................... 287 41 328
Interest Income.......................... (30) (54) (84)
Other (Income) Expense, net.............. 13 (111) (98)
-------- -------- --------
Income from Continuing Operations Before
Income Taxes............................. 700 844 1,544
Income Tax Expense......................... 243 255 498
-------- -------- --------
Income from Continuing Operations.......... $ 457 $ 589 $ 1,046
======== ======== ========
Earnings from continuing operations per
common share:
Basic.................................... $ 0.72 $ 1.12 $ 0.83
Diluted.................................. $ 0.70 $ 1.09 $ 0.81
Weighted average shares outstanding:
Basic.................................... 632.6 517.2 98.3 1,248.1
Diluted.................................. 648.6 534.5 101.6 1,284.7
</TABLE>
See accompanying notes to unaudited pro forma condensed
combined financial information.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
----------------------- ----------- -----------
<S> <C> <C> <C> <C>
PHARMACIA
MONSANTO & UPJOHN
----------- ----------
Net Sales.................................. $ 7,237 $ 6,758 $13,995
Costs, Expenses and Other:
Cost of Goods Sold....................... 2,912 2,031 4,943
Selling, General and Administrative
Expenses................................. 2,129 2,552 4,681
Research and Development................. 1,308 1,234 2,542
Acquired In-Process Research and
Development.............................. 402 0 402
Amortization and Adjustment of Intangible
Assets................................... 286 98 384
Restructuring, Merger and Special
Charges.................................. 153 92 245
Interest Expense......................... 210 26 236
Interest Income.......................... (47) (92) (139)
Other Income, net........................ (31) (160) (191)
-------- -------- --------
Income (Loss) from Continuing Operations
Before Income Taxes...................... (85) 977 892
Income Tax Expense......................... 46 346 392
-------- -------- --------
Income (Loss) from Continuing Operations... $ (131) $ 631 $ 500
======== ======== ========
Earnings (loss) from continuing operations
per common share:
Basic.................................... $ (0.22) $ 1.20 $ 0.40
Diluted.................................. $ (0.22) $ 1.17 $ 0.39
Weighted average shares outstanding:
Basic.................................... 603.5 517.5 98.4 1,219.4
Diluted.................................. 603.5 534.0 129.6 1,267.1
</TABLE>
See accompanying notes to unaudited pro forma condensed
combined financial information.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
----------------------- ----------- -----------
<S> <C> <C> <C> <C>
PHARMACIA
MONSANTO & UPJOHN
----------- ----------
Net Sales.................................. $ 6,058 $ 6,586 $12,644
Costs, Expenses and Other:
Cost of Goods Sold....................... 2,382 2,047 4,429
Selling, General and Administrative
Expenses................................. 1,745 2,642 4,387
Research and Development................. 1,049 1,246 2,295
Acquired In-Process Research and
Development.............................. 633 0 633
Amortization of Intangible Assets........ 121 107 228
Restructuring, Merger and Special
Charges.................................. 0 316 316
Interest Expense......................... 135 33 168
Interest Income.......................... (45) (113) (158)
Other Income, net........................ (89) (127) (216)
-------- -------- --------
Income from Continuing Operations Before
Income Taxes............................. 127 435 562
Income Tax Expense (Benefit)............... (22) 177 155
-------- -------- --------
Income from Continuing Operations.......... $ 149 $ 258 $ 407
======== ======== ========
Earnings from continuing operations per common share:
Basic.................................... $ 0.26 $ 0.48 $ 0.33
Diluted.................................. $ 0.24 $ 0.48 $ 0.32
Weighted average shares outstanding:
Basic.................................... 590.2 516.0 98.0 1,204.2
Diluted.................................. 610.5 529.9 105.1 1,245.5
</TABLE>
See accompanying notes to unaudited pro forma condensed
combined financial information.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
----------------------- ----------- -----------
<S> <C> <C> <C> <C>
PHARMACIA
MONSANTO & UPJOHN
----------- ----------
Net Sales.................................. $ 4,862 $ 7,176 $12,038
Costs, Expenses and Other:
Cost of Goods Sold....................... 1,953 2,116 4,069
Selling, General and Administrative
Expenses................................. 1,540 2,453 3,993
Research and Development............... 657 1,283 1,940
Amortization and Adjustment of Intangible
Assets................................... 98 119 217
Restructuring, Merger and Special
Charges.................................. 312 585 897
Interest Expense......................... 83 56 139
Interest Income.......................... (51) (161) (212)
Other Income, net........................ (86) (93) $ 8(g)(2) (171)
-------- -------- -------- --------
Income from Continuing Operations Before
Income Taxes............................. 356 818 (8) 1,166
Income Tax Expense......................... 77 268 345
-------- -------- -------- --------
Income from Continuing Operations.......... $ 279 $ 550 $ (8) $ 821
======== ======== ======== ========
Earnings from continuing operations per common share:
Basic.................................... $ 0.48 $ 1.04 $ 0.68
Diluted.................................. $ 0.47 $ 1.03 $ 0.67
Weighted average shares outstanding:
Basic.................................... 581.2 515.1 97.9 1,194.2
Diluted.................................. 598.9 530.5 100.2 1,229.6
</TABLE>
See accompanying notes to unaudited pro forma condensed
combined financial information.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
----------------------- ----------- -----------
<S> <C> <C> <C> <C>
PHARMACIA
MONSANTO & UPJOHN
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents................... $ 84 $ 1,245 $ 1,329
Short term investments...................... - 137 137
Receivables................................. 2,791 1,420 4,211
Inventories................................. 1,598 1,118 2,716
Other current assets........................ 1,174 776 1,950
-------- -------- --------
Total current assets........................ 5,647 4,696 10,343
Net property, plant and equipment........... 3,050 3,278 6,328
Intangible assets, net of accumulated
amortization................................ 4,645 1,176 5,821
Other assets................................ 1,055 1,308 $ 26(d) 2,389
Net assets of discontinued operations....... 1,586 0 1,586
-------- -------- -------- --------
Total assets................................ $15,983 $10,458 $ 26 $26,467
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt............................. $ 915 $ 1,056 $ 1,971
Accounts payable............................ 472 333 805
Accrued liabilities......................... 2,168 1,857 $ 110(d) 4,135
-------- -------- -------- --------
Total current liabilities................... 3,555 3,246 110 6,911
Long-term debt.............................. 5,961 339 6,300
Other liabilities........................... 1,224 1,325 2,549
-------- -------- -------- --------
Total liabilities........................... 10,740 4,910 110 15,760
-------- -------- -------- --------
Shareholders' equity:
Preferred stock (Monsanto).................. 0 0 273(g)(3) 273
Preferred stock (Pharmacia & Upjohn)........ 0 273 (273)(g)(3) 0
Common stock issued......................... 1,694 5 1,231(g)(l) 2,930
Additional contributed capital.............. 1,467 1,492 70(d) 1,789
(1,240)(g)(1)
Treasury stock.............................. (2,449) (9) 9(g)(l) (2,449)
Retained earnings........................... 5,101 5,501 (154)(d) 10,448
Reserve for ESOP debt retirement............ (91) (247) (338)
Accumulated other comprehensive loss........ (479) (1,467) (1,946)
-------- -------- -------- --------
Total shareholders' equity.................. 5,243 5,548 (84) 10,707
-------- -------- -------- --------
Total liabilities, and shareholders' equity. $15,983 $10,458 $ 26 $26,467
======== ======== ======== ========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of income (loss) are
based on the unaudited consolidated condensed financial statements of each of
Monsanto and Pharmacia & Upjohn for the nine months ended September 30, 1999,
and the audited consolidated financial statements of each of Monsanto and
Pharmacia & Upjohn for the years ended December 31, 1998, 1997 and 1996. The
unaudited pro forma condensed combined statement of financial position is based
on the unaudited consolidated condensed financial statements of each of Monsanto
and Pharmacia & Upjohn at September 30, 1999. In the opinion of Monsanto and
Pharmacia & Upjohn management, all adjustments and/or disclosures necessary for
a fair presentation of the pro forma data have been made. These unaudited pro
forma combined condensed financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or the
financial position that would have been achieved had the merger been consummated
as of the dates indicated or of the results that may be obtained in the future.
(b) ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS
The accounting policies of Monsanto and Pharmacia & Upjohn are substantially
comparable, except for their accounting policies for the sale of stock by a
subsidiary as described in "Other Pro Forma Adjustments". Certain revenues,
costs and other deductions in the consolidated statements of earnings of
Pharmacia & Upjohn have been reclassified to conform to the line item
presentation in the pro forma condensed combined statements of income (loss).
Certain assets and liabilities in the consolidated statements of financial
position of Monsanto and Pharmacia & Upjohn have been reclassified to conform
to the line item presentation in the pro forma condensed combined statement of
financial position.
(c) PRO FORMA EARNINGS PER SHARE
The pro forma combined basic earnings per share is based on income from
continuing operations less preferred stock dividends ($10 million for the nine
months ended September 30, 1999, and $13 million for each of the years ended
December 31, 1998, 1997 and 1996, respectively) and the weighted average number
of outstanding common shares. Diluted income per share includes the dilutive
effect of incentive stock options, convertible preferred stock and certain
convertible debt securities. The weighted average number of outstanding common
shares has been adjusted to reflect the exchange ratio of 1.19 shares of
Monsanto common stock for each share of Pharmacia & Upjohn common stock.
(d) MERGER-RELATED EXPENSES
A one-time charge for direct incremental Merger-related transaction costs
will be recorded in the quarter in which the Merger is consummated. The direct
incremental Merger-related transaction costs consist principally of charges
related to investment banking fees, professional services, registration and
other regulatory costs (approximately $110 million) and stock compensation
arrangements (approximately $70 million before taxes of approximately $26
million). The charges for stock compensation arrangements consist of
accounting charges related to certain Monsanto stock options which were
granted with exercise prices above the fair market value of Monsanto Common
Stock on the date such options were granted (the "Premium Options"). Pursuant
to the terms of the Premium Options, at consummation of the Merger, the
exercise price of such Premium Option will be reduced to equal the fair market
value on the date of grant.
(e) INTEGRATION-RELATED EXPENSES
Monsanto and Pharmacia & Upjohn expect to incur pre-tax charges to
operations, currently estimated to be between $500 and $800 million, to reflect
costs associated with combining the operations of the two companies. These costs
will be recorded subsequent to consummation of the merger. These amounts are
preliminary estimates and are therefore subject to change. Additional
unanticipated expenses may be incurred in the integration of the businesses of
Monsanto and Pharmacia & Upjohn. Although Monsanto and Pharmacia & Upjohn expect
that the elimination of duplicative expenses as well as the realization of other
efficiencies related to the integration of the businesses may result in cost
savings, no assurance can be given that these benefits will be achieved in the
near term or at all. The unaudited pro forma condensed combined financial
statements reflect neither the impact of these charges nor the benefits from the
expected synergies.
<PAGE>
(f) AGRICULTURAL INITIAL PUBLIC OFFERING
Monsanto and Pharmacia & Upjohn have announced an intention to reorganize the
Monsanto agricultural business, as a subsidiary of the combined company and sell
up to 19.9% of this subsidiary by means of an initial public offering. The
agricultural business would become a separate legal entity, with a stand-alone
board of directors and its own publicly traded stock upon completion of the
intended initial public offering.
At the time of the initial public offering for a minority interest in the
agricultural business, any difference between the fair market value (expressed
as the offering price) and the net book value of the minority interest at the
time of the offering will be recorded as an adjustment to stockholders' equity.
No price for the intended offering has been established. Subsequent to an
offering, the combined company would reflect a minority interest in the equity
of a consolidated subsidiary on its statement of financial position and a
minority interest in the earnings of a consolidated subsidiary on its statement
of income.
(g) OTHER PRO FORMA ADJUSTMENTS
(1) A pro forma adjustment has been made to reflect the assumed issuance of
approximately 618 million shares of Monsanto common stock in exchange for all of
the outstanding Pharmacia & Upjohn common stock (based on the exchange ratio of
1.19). The actual number of shares of Monsanto common stock to be issued in
connection with the merger will be based on the number of shares of Pharmacia &
Upjohn common stock issued and outstanding at the effective time.
(2) In 1996, Pharmacia & Upjohn recorded a gain of $8 million on the issuance
of new shares by one of its subsidiaries in an initial public offering. The
accounting policy of Monsanto for this type of transaction requires that the
resulting gain be recorded as a credit to shareowners' equity rather than as
income. Therefore, the pro forma condensed combined statement of income for the
year ended December 31, 1996, has been adjusted to conform accounting policies
and eliminate the gain that was recorded by Pharmacia & Upjohn.
(3) Under the merger agreement, each outstanding share of Pharmacia & Upjohn
convertible perpetual preferred stock will be converted into the right to
receive one share of Monsanto convertible perpetual preferred stock. The terms
of the Monsanto convertible perpetual preferred stock are substantially
identical to the terms of the Pharmacia & Upjohn convertible perpetual preferred
stock. Each outstanding Pharmacia & Upjohn option will be converted into an
option with respect to common stock of the combined company, in a manner that
maintains the intrinsic value of the converted options. The number of shares of
common stock of the combined company to which any such converted option will
pertain will equal the number of Pharmacia & Upjohn shares subject to the option
multiplied by 1.19 (the exchange ratio for the merger), and the exercise price
of such award will be its current exercise price divided by 1.19.
<PAGE>
Monsanto and Pharmacia & Upjohn have filed a preliminary joint proxy
statement and prospectus with the United States Securities and Exchange
Commission (the "SEC"). In addition, Monsanto and Pharmacia & Upjohn will be
filing a definitive joint proxy statement/prospectus and other relevant
documents concerning the merger with the SEC. WE URGE INVESTORS TO READ THE
DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS
TO BE FILED WITH THE SEC, BECAUSE THEY CONTAIN IMPORTANT INFORMATION.
Investors will be able to obtain the documents free of charge at the SEC's
website, http://www.sec.gov. In addition, documents filed with the SEC by
Monsanto will be available free of charge from the Secretary of Monsanto at
800 North Lindbergh Blvd., St. Louis, Missouri 63167, Telephone (314)
694-3155. Documents filed with the SEC by Pharmacia & Upjohn will be
available free of charge from the Corporate Secretary of Pharmacia & Upjohn,
100 Route 206 North, Peapack, NJ 07977, Telephone (888) 768-5501. READ THE
DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY BEFORE MAKING A
DECISION CONCERNING THE MERGER.
Monsanto, its directors, executive officers and certain other members of
management and employees may be soliciting proxies from Monsanto stockholders
in favor of the merger. Information concerning the participants in the
solicitation is set forth in the Current Report on Form 8-K filed by Monsanto
with the SEC on January 25, 2000.
Pharmacia & Upjohn, its directors, executive officers and certain other
members of management and employees may be soliciting proxies from Pharmacia
& Upjohn stockholders in favor of the merger. Information concerning the
participants in the solicitation is included in filings under Rule 425 made
by Pharmacia & Upjohn with the SEC on January 27, 2000.
