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False Spring For A Seed Company

Corporation: Makeovers

False Spring for a Seed Company

After a buying spree, AgriBioTech must juggle a big debt load

Last spring, as agricultural-biotech fever raged on Wall Street, one of the hottest bets was AgriBioTech Inc. The Henderson (Nev.)-based company had gobbled up dozens of small seed companies, and its gung ho chief exec, Johnny Thomas, 57, spun a good story for the Street. He claimed his company was positioned to develop genetically enhanced alfalfa and turf grasses and would soon have the breadth to distribute them nationwide. As big-name investors such as George Soros and Fidelity Investments rushed to buy in, AgriBioTech's shares shot up tenfold from early 1997, to 29.

Just a couple of problems. Turf and grazing grass seed have lower margins than corn, soybeans, and other cash crops that have attracted such big ag-bio players as DuPont Co. and Monsanto Co. In time, dairy farmers may pay up for a more digestible alfalfa, as may golf course operators looking for the perfect putting green. But these kinds of grasses won't hit the market for at least five years.BEVY OF SUITS. Thomas' acquisition strategy also got out of hand. AgriBioTech wound up issuing massive amounts of new shares. Debt, meanwhile, ballooned to $135 million, compared with annual revenues of about $409 million. By February, most big-name backers, including Soros, had fled the scene. Thomas resigned on Feb. 26 after failing to find a buyer for the company. The stock today trades around 5 1/2. "We saw the story wasn't materializing, so we got out," says J. Gary Craven, portfolio manager for Evergreen Investment Management of Boston, who sold 100,000 shares. So far, shareholders have filed 14 lawsuits, claiming the company misstated its revenues and its buyout prospects. AgriBioTech says the suits are without merit and will contest them.

AgriBioTech clearly has lost its luster. The question now is whether the company's new CEO, Richard Budd, 56, can keep it whole. With losses of $10 million for the first half of its fiscal year, which ends June 30, Budd says the buying spree is over for now. His priorities are to cut costs and renegotiate debt. "We'll stick to the fundamentals," he says.

Budd says it still makes sense to consolidate the development, production, and distribution of many small seed brands into one more efficient operation. He has some experience, having built up Lofts Seeds Inc. by that route before AgriBioTech bought the Winston-Salem (N.C.)-based company for $34 million in 1997. All told, Thomas purchased 34 companies in four years. "They were always the highest bidder," recalls R.B. Halaby, president of AgriCapital Corp., which helped sell six companies to AgriBioTech.CASH CRUNCH. Budd exhibits a lot less flash than his predecessor. Thomas spent a lot of time on the road, selling his vision to seed companies and potential investors. Budd is in the office more. His first order of business is clearing up the debt mess. In January, AgriBioTech was forced to sell $25 million of convertible bonds to pay off bridge loans to BankAmerica and other lenders. The bonds are unlikely to be turned into stock at the conversion price of 13 11/16--more than twice the current stock price. But unless Budd finds $30 million to redeem the bonds, they will be repriced to market on June 30, diluting already beleaguered shareholders. Next, Budd plans to squeeze $14 million out of costs. He says he'll sell some warehouses and other facilities and lay off as many as 500 of his 1,300 employees.

AgriBioTech's research staff is likely to be spared, since Budd still plans to launch new types of alfalfa and other forage grasses. But even if those new grasses hit the market, AgriBioTech won't be alone. Monsanto is collaborating with rival Research Seeds Inc. to produce an alfalfa that can be sprayed with Monsanto's Roundup herbicide and is working with Scotts Co. on a similar version of turf grass. After its heated run on Wall Street, AgriBioTech may find that it's left out in the cold.By Andrew Osterland in ChicagoReturn to top

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