Monsanto and DuPont Reach Settlement

Monsanto and DuPont Reach Settlement In a move that will surely bring a bitter battle to an end, two chemical giants with a strong hold on the U.S. Seed industry have dropped the legal battles against each other. Both Monsanto (NYSE: MON), the world’s largest seed company, and DuPont (NYSE: DD) have reached a settlement with each other outside the court and decided to drop the anti-trust and patent infringement lawsuits against each other.

The two companies have been building up their consumer base throughout the country, developing improved crops with better yield. DuPont Pioneer garnered a sale of over $7.3 Billion in 2012 while Monsanto bagged $13.5 Billion in sales last year.

In August 2012, the U.S District Court in St. Louis court had awarded Monsanto $1 Billion in damages, contending that DuPont Pioneer had violated a licensing agreement for use of the Roundup Ready trait. The Federal Court, in a trial that ran for four weeks, held that DuPont Pioneer had infringed on the intellectual property rights of Monsanto for quite a number of years. DuPont had decided to appeal the judgement then, before the turn of events made the two companies reach an early settlement.

Now, Monsanto and DuPont have dropped claims against each other and reached a new settlement. According to the new settlement, DuPont will pay up $1.7 Billion as royalty payments which will span over a number of years in exchange for using some of Monsanto’s genetic technology. DuPont is expected to pay a minimum of $950 million annually through 2023. DuPont is also expected to make four yearly payments from 2013 to 2017, totalling around $802 million for trait technology, soybean lines, and all associated data.

Monsanto will also gain benefit by receiving the patents of some of DuPont disease resistance and corn defoliation patents. DuPont has also dropped another case against Monsanto where it alleged anti-competitive behaviour on Monsanto’s part.  The case was to be heard this fall.

Both companies described the settlement as a win-win situation for themselves. While Monsanto believes the settlement will usher in a lot more than $1.75 billion with DuPont using Monsanto’s technology on its wide customer base, DuPont believes that the settlement is a win-win for its shareholders.  For DuPont, this brings in the availability of more technologies, which they can combine with their already available ones.

DuPont is expected to start using the Genuity Roundup Ready 2 Xtend and Genuity Roundup Ready 2 Yield soybean technology by paying on a per unit basis. DuPont Pioneer actually expects to provide the Genuity Roundup Ready 2 Yield soybeans into the market as early as 2014, with DuPont already starting to test the variety in the field this year.

It remains to be seen how the shares of the two companies react in the long term after the agreement. After the news of the settlement came out, Monsanto’s shares rose around 4 percent while DuPont’s shares fell around 1 percent.  DuPont’s shares, it might be remembered, have fallen by as much as 8% in the last one year while Monsanto’s shares have increased a whopping 26% in the last one year.