DuPont swap boosts value of Philly's FMC

Shares of Philadelphia-based FMC Corp. topped $70 for the first time in almost three years Monday. The stock rose after jumping more than $8 on Friday, when FMC said it would swap its food and drug additives unit for part of DuPont Co.'s pesticides business plus $1.6 billion.

Is FMC up because it will now be a global player in the fast-consolidating farm-supply business? Or because, as a pure-play pesticide stock, it's now a target for yet another merger, maybe with German giant BASF, which Reuters says sought to buy FMC last year?

"The steps we have taken make FMC much more difficult to acquire," not easier, Pierre Brondeau, FMC's chief executive, told me Monday.

"I know there has been a lot of noise around BASF," Brondeau said. "But if you look at BASF and any large corporation in the space, we are almost a legally impossible company to acquire."

That's because DuPont sold FMC part of its pesticide business — including what Brondeau calls an attractive "research pipeline" of 15 products in development — precisely because the European Commission believes the planned mergers of Dow Chemical Co. and DuPont, Bayer and Monsanto, ChemChina and Syngenta, along with BASF alone, would leave too few global pesticide makers. Less research. Higher prices. "They said, 'Absolutely not,' " Brondeau said.

If four pesticide giants are too few, then BASF can't buy FMC. Nor can anyone else on that list, Brondeau concluded. "That is why we were set up."

Could some nonpesticide industrial giant buy FMC if it lined up the billions? "It would have to be a large chemical company" that wanted to join the pesticide wars just as rivals are consolidating, Brondeau said.

If even Dow and DuPont are vulnerable to shareholder pressure — which forced their merger — Brondeau has to be measuring his fast steps carefully. Does he expect any help from the pro-business administration in Washington? Just one thing, Brondeau says: "I hope they will get quickly onto the tax agenda. The U.S. is one of the highest-tax jurisdictions in the world."

The DuPont deal would more than double FMC's $142 million research and development effort, to 800 people, with a $300 million yearly R&D budget by 2020 at labs in Newark, Del.; Ewing, N.J.; and more than 20 other cities worldwide, wrote analyst James Sheehan at SunTrust Robinson Humphrey.

"We will no longer be reliant on others to add new molecules to our pipeline," Brondeau told investors in a conference call Friday.

Sales of Rynaxypyr, the most popular of the pesticides FMC bought from DuPont, "peaked at over $1 billion several years ago," noted David Fisher, an analyst for Barclays. FMC executives said they expect to boost Rynaxypyr sales in Asia. Its intellectual-property protections expire in 2022.

Rynaxypyr sales have fallen due in part to "reduced farmer demand" due to "Monsanto's new Intacta soybean seed," Moody's analyst Joseph Princiotta wrote.

Besides sending its food and drug additives business to DuPont, FMC plans to get rid of its other nonpesticide operations: Brondeau said FMC wants to spin off its lithium unit as a separate company, sometime after 2018.

That unit, based in Philadelphia, imports material from Argentina and processes it at a mill in North Carolina. Lithium is used in batteries, antidepressants, and other products. SunTrust's Sheehan estimated the current value of FMC Lithium at more than $2.2 billion.

Sheehan also projects FMC's fair value at $82 a share after the DuPont deal, a 17 percent premium on Monday's close.

The new focus on developing pesticides from the molecule up is a departure for FMC. "Historically, you guys have embraced an R&D-light approach," Goldman Sachs analyst Christopher Evans reminded Brondeau in the conference call.

With larger companies combining, FMC was already beefing up its research; the DuPont deal speeded up what he was already doing, Brondeau said.