Crop genetic engineering company Evogene Ltd. (TASE:EVGN; Pink Sheets: EVENF) has announced another change in its leading cooperation agreement with Monsanto Corporation (NYSE: MON). Part of the agreement was due to expire in 2014, and the companies were to renegotiate it, but Evogene has apparently decided to reach a deal now, ahead of its planned listing on the New York Stock Exchange (NYSE), to show investors that the collaboration is continuing.
Evogene is due to hold an offering on the NYSE by the end of the year. Its current market cap is NIS 1.1 billion, after rising 0.8% by mid-afternoon on the TASE to NIS 19.85.
Under the new agreement, Evogene will expand the products it provides Monsanto. The initial collaboration focused on identifying key plant genes related to yield, environmental stress and fertilizer utilization in corn, soybean, cotton and canola. The newly signed agreement extends these existing programs through to August 2016, and adds a new five year program for the identification of genes providing resistance to Stalk Rot disease in corn, caused by multiple Fusarium species. Fusarium is a family of fungi that causes significant yield loss across the world's major crops
Monsanto will pay Evogene an additional $20 million over the next two years for the expanded portfolio to finance the joint development. Evogene will report the capital as income, and immediately spend it on R&D.
Evogene will cancel its put option to sell one million shares to Monsanto at $12 per share (compared with its current share price of $8), for a total investment of $12 million. This option has been replaced with increased future milestone payments and royalty rates on genes licensed by Evogene to Monsanto. The prior put option has been replaced with a new $12 million put option under which shares will be sold at market value at time of exercise (subject to set minimum and maximum prices).
Evogene did not disclose the milestone payments, but they could total hundreds of millions of dollars altogether.
The original collaboration agreement, signed in 2008 and extended in 2011, is the basis for Evogene's existence. When the initial agreement was signed, it was a new company with agreements worth a few million dollars with seed companies, and a market cap of NIS 135 million. Under the agreement, Monsanto has invested $18 million in Evogene for a 13.5% stake, and allocated an additional $35 million for joint development projects, as well as milestone payments (most of which have already been paid).
The question why Monsanto has not acquired Evogene has always hovered over the companies' relationship. Today's vote of confidence by Monsanto in Evogene increases the likelihood of an acquisition.
Published by Globes [online], Israel business news - www.globes-online.com - on October 28, 2013
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