At this point, shareholders in life-sciences giant Monsanto have to be wondering what else can go wrong. Last year, the company’s prospective merger with American Home Products unraveled in acrimony over leadership and strategy questions. The company’s agribusiness unit, which it had once planned to make the center of its operations, became the target of serious opposition in Europe to genetically modified seeds and crops. Even as the major stock indices continued to rise briskly, Monsanto’s shares have languished. And this past week has seen bad news on two different fronts. Last Tuesday, a class-action lawsuit orchestrated by environmental gadfly Jeremy Rifkin was filed against the company, while today investors reacted to news of Monsanto’s planned merger with Pharmacia & Upjohn by sending the company’s shares down 12 percent.
I’ve written enough here about the vices of mergers, and those vices are well-documented enough, to make any extended comment on the Monsanto/Pharmacia deal superfluous. There’s no good reason to think that this deal will work, and it smacks of a move made–by both Monsanto and Pharmacia–to preempt other, perhaps hostile, suitors. So the Street’s reaction to the deal was sensible. The one interesting element of that reaction, though, was that investors were frustrated that, as part of the deal, Monsanto will be spinning off just 19 percent of its agribusiness unit. That unit is now generally acknowledged to be a drain on the company’s stock price, and so Monsanto shareholders have been hoping for a full spin-off. But in the wake of this deal, tax considerations make anything more than a 19 percent spinoff next to impossible to pull off.
In the long run, that may actually be a good thing. Given the ongoing uproar over genetically modified crops, an uproar that has played an important role in the opposition to the World Trade Organization and that has become a key trade issue between the United States and Europe, agribusiness certainly seems to be a short-term loser. But half of all the soybean crops and a third of all the corn in the United States are already genetically modified varieties, and the possibilities of using genetic modification to increase crop yields and protect against pesticides, to say nothing of creating vitamin-enhanced crops, are so wide-ranging that it seems difficult to imagine they will be dismissed out of hand.
Of course, that’s exactly what Jeremy Rifkin would like to do. The lawsuit filed last week on behalf of a small group of American farmers and a French organic farmer was a haphazard and scattershot collection of charges that might have been designed to demonstrate the excesses to which the U.S. legal system can be driven. The lawsuit accuses Monsanto of introducing products without testing them sufficiently for safety, misleading farmers about these products, and monopolizing the patents and sale of these unsafe products. In other words, it’s a class-action unsafe-product, fraud, antitrust lawsuit. The damages being asked for are “unspecified,” but Rifkin has said they could amount to hundreds of millions of dollars. How he reached that figure remains unclear.
The suit is exactly what it appears to be: a publicity stunt. To begin with, Monsanto hasn’t violated any law by selling genetically modified seeds, and in fact its products have been certified by the FDA (which, needless to say, does not certify “normal” seeds). And the company can’t be accused of selling unsafe products because there’s no evidence that the products are unsafe. That’s why the suit just says they should have tested more. The fraud charge seems equally spurious, since Monsanto has been straightforward about its testing procedures. And as for the antitrust charge, the fact that Novartis, DuPont, Dow, and AstraZeneca are all named in the suit as “co-conspirators” (though not actual defendants) makes the monopoly charge a bit hard to believe. Perhaps we could next sue Ford, GM, DaimlerChrysler, Toyota, and Volkswagen for monopolizing the auto market.
Obviously, there are important issues about genetically-modified agriculture that have yet to be resolved. And just as obviously, the major agribusiness companies have hurt themselves by obstinately opposing things like labeling of genetically modified crops (which is now required in Japan, the E.U., and South Korea). But class-action lawsuits are not useful ways of determining public policy. (Perhaps the most ridiculous aspect of this whole farce is Rifkin’s use of the word “populist” to describe the suit.) They are, though, very useful ways of fomenting ill-considered controversies. And in that sense, I suppose, the suit is already a great success.
