Monsanto Co. (MON), the world’s largest seed company, agreed to buy The Climate Corp. for about $930 million to provide farmers with weather data and farm modeling to help them boost yields and manage risk.
Closely held Climate Corp. was founded in 2006 by software engineers and data scientists who previously worked at Google Inc. and other Silicon Valley technology companies, St. Louis-based Monsanto said today in a statement.
Monsanto is building on its core business selling genetically modified crop seeds and associated herbicides, adding data to boost harvests through seed choice and pesticide timing. Today’s acquisition, the company’s largest in seven years, will be combined with last year’s $210 million purchase of Precision Planting LLC, which developed an iPad interface farmers use in their tractors to adjust planting rates.
“I like this deal,” Mark Gulley, a New York-based analyst at BGC Partners LP who recommends buying the shares, said today by phone. “It’s big data meets big ag biotech. It’s a new platform for growth.”
Using “hyper-local weather monitoring,” predictive models and other data to help farmers make optimal growing decisions can eventually boost corn yields by 30 bushels to 50 bushels an acre, Climate Corp. Chief Executive Officer David Friedberg said on a call with reporters today. The company also helps farmers save money by avoiding badly timed pesticide use, he said.
Climate Corp. data will be combined with Precision Planting equipment under the newly created Integrated Farming System platform, creating a 1-billion-acre, $20 billion sales opportunity, Monsanto’s Chairman and CEO Hugh Grant said on a call with analysts. The acquisition could add to earnings in as soon as two years, Chief Financial Office Pierre Courduroux said on the call.
Monsanto will charge $10 an acre in 2014 for its Precision Planting service, whose variable planting technology added 5 to 10 bushels an acre this year in tests with 160 corn farmers, Grant said on the call.
Monsanto expects to partner with equipment makers, crop chemical producers and farm retailers to “build out” the platform, Grant said. No more acquisitions are currently expected, he said.
The company also sells weather and crop insurance, Friedberg said. Grant said he plans to strengthen that business in the U.S. and bring it to other countries, particularly Brazil and Argentina where crop insurance offerings are limited.
Climate Corp. investors include Founders Fund, the venture capital firm started by Facebook Inc. investor Peter Thiel; Google Ventures; Khosla Ventures LLC; Allen & Co.; Atomico, the venture capital firm created by Skype Inc. co-founder Niklas Zennstrom; and First Round Capital, according to the company’s website.
Earnings in the fiscal year that began Sept. 1 will rise as much as 14 percent to $5 to $5.20 a share, Monsanto said today in a separate statement. That trailed the $5.34 average of 22 estimates compiled by Bloomberg.
Corn has fallen 42 percent in the past year amid forecasts for a record crop in the U.S., the world’s biggest grower. Modified corn seed is Monsanto’s largest business.
The full-year forecast assumes corn-seed margins expand by 3 percentage points as prices increase an average of 5 percent to 10 percent, the CFO said. Soybean margins will widen by 6 to 8 points because of this year’s licensing agreement for Roundup Ready 2 soybeans with DuPont Co. and the first sales of Intacta insect-repelling beans in Brazil, he said.
Since 2010, Grant has targeted annual percentage profit increases in the “mid-teens” by raising prices on its newest modified seeds and expanding in Brazil and Argentina.
Monsanto’s fourth-quarter loss excluding one-time items was 47 cents a share, wider than the 43-cent average of 20 estimates compiled by Bloomberg.
The period is typically Monsanto’s weakest quarter for earnings because farmers in North America and Europe are just beginning to harvest and haven’t begun purchasing seed and herbicide for spring planting.
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