"A $2.3 billion hit could be looming over Monsanto Co.... Adverse court decisions would likely force Solutia into bankruptcy and leave Monsanto on the hook for damages"
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Monsanto investors warned of Solutia-related threat
Mon August 4, 2003 03:18 PM ET
http://reuters.com/financeNewsArticle.jhtml?storyID=3216573&type=hotStocksNews

KANSAS CITY - (Reuters) A $2.3 billion hit could be looming over Monsanto Co.  in the form of litigation liabilities, according to an analyst's report released yesterday that drove the agricultural chemical company's shares down almost 6 percent.

Monsanto's stock fell 5.8 percent early in the session to an intraday low of $20.86, but recovered some of those losses by early afternoon to trade at $21.80, down 1.6 percent, on the New York Stock Exchange.

The drop in the stock's price followed a report by Banc of America Securities analyst Kevin McCarthy, who downgraded Monsanto to "neutral" from "buy."

The downgrade followed warnings last week by Monsanto that its long-held liabilities associated with Solutia Inc. were becoming more perilous as a trial over chemical contamination in Alabama approaches.

The downgrade comes on the heels of Monsanto's better-than-expected quarterly earnings results last Thursday.

"The risk has grown in recent weeks and that has prompted this action," McCarthy said.

Although the analyst said fundamentals at Monsanto appeared to be improving in the short term, a long-term outlook and uncertainty related to the Solutia situation necessitated the warning to investors.

McCarthy previously had pegged Solutia-related liabilities for Monsanto at $1.65 billion, or $6.29 a share. The new estimate of $2.3 billion equates to $8.88 a share.

Monsanto spokeswoman Lori Fisher said the company would not comment on the report but acknowledged the risk around Solutia was "heightened."

"We're not in a position to quantify around a Solutia liability," she said.

Last week, Monsanto Chief Financial Officer Terry Crews said the Solutia situation was "uncertain." He said the company was "preparing contingency plans and alternatives for action," but declined to provide details.

Other analysts have expressed similar concerns.

"It is just giving everybody heartburn right down the line," said R.T. Jones Capital Equities analyst Juli Niemann.

Solutia, spun off from Monsanto in 1997, represents what once was the chemical business component of the old Monsanto, a conglomerate of agricultural, chemical and pharmaceutical businesses.

Solutia is being sued in both state and federal courts because of harmful chemical pollution in Alabama. It has already been found liable for property damage; thousands of personal injury claims are headed to court this fall.

Monsanto and the financially beleaguered Solutia had been hopeful a settlement could be reached, but both companies said last week that was not likely at this point.

Adverse court decisions would likely force Solutia into bankruptcy and leave Monsanto on the hook for damages, analysts fear.

Story by Carey Gillam

Story Date: 5/8/2003
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