Monsanto Company History

Company Perspectives:

Monsanto has reinvented not only itself, but an industry. We're now a life-sciences company, exploring the natural connections between food, medicine and health. We're developing products previously inconceivable, confirming our conviction that such a new way of looking at things will help us all to thrive.

Company History:

An agricultural and pharmaceutical stalwart, Monsanto Company is a leading producer of herbicides, prescription drugs, and genetically engineered seeds. Originally a chemical company, Monsanto sold its chemical business in 1997 to build a presence in biotechnology, scoring much-publicized success in developing soybeans able to resist the affects of its market-leading herbicide, Roundup. The company also produced NutraSweet, the dominant sugar substitute in the United States. A sprawling global corporation, Monsanto operated sales offices, manufacturing plants, and research facilities in more than 100 countries.

Early 20th-Century Origins

Monsanto traces its roots to John Francisco Queeny, a purchaser for a wholesale drug house at the turn of the century, who formed the Monsanto Chemical Works in St. Louis, Missouri, in order to produce the artificial sweetener saccharin. By 1905 John Queeny's company was also producing caffeine and vanillin and was beginning to turn a profit. In 1908 Queeny felt confident enough about his firm's future to leave his part-time job with another drug house to work full time as Monsanto's president. The company continued to grow, with sales surpassing the $1 million mark for the first time in 1915.

While prior to World War I America relied heavily on foreign supplies of chemicals, the increasing likelihood of U.S. intervention meant that the country would soon need its own domestic producer of chemicals. Looking back on the significance of the war for Monsanto, Queeny's son Edgar remarked, "There was no choice other than to improvise, to invent and to find new ways of doing all the old things. The old dependence on Europe was, almost overnight, a thing of the past." Monsanto was forced to rely on its own knowledge and nascent technical ability. Among other problems, Monsanto researchers discovered that pages describing German chemical processes had been ripped out of library books. Monsanto developed several strategic products, including phenol as an antiseptic, in addition to acetylsalicyclic acid, or aspirin.

With the purchase of an Illinois acid company in 1918, Monsanto began to widen the scope of its factory operations. A postwar depression during the early 1920s affected profits, but by the time John Queeny turned over the company to Edgar in 1928 the financial situation was much brighter. Monsanto had gone public, a move that paved the way for future expansion. At this time, the company had 55 shareholders and 1,000 employees and owned a small company in Britain.

Under Edgar Queeny's direction Monsanto, now the Monsanto Chemical Company, began to substantially expand and enter into an era of prolonged growth. Acquisitions expanded Monsanto's product line to include the new field of plastics and the manufacture of phosphorus.

By the time the United States entered World War II in 1941, the domestic chemical industry had attained far greater independence from Europe. Monsanto, strengthened by its several acquisitions, was also prepared to produce such strategic materials as phosphates and inorganic chemicals. Most important was the company's acquisition of a research and development laboratory called Thomas and Hochwalt. The well-known Dayton, Ohio, firm strengthened Monsanto at the time and provided the basis for some of its future achievements in chemical technology. One of its most important discoveries was styrene monomer, a key ingredient in synthetic rubber and a crucial product for the armed forces during the war.

Expansion and New Leadership in the Postwar Period

Largely unknown by the public, Monsanto experienced difficulties in attempting to market consumer goods. However, attempts to refine a low quality detergent led to developments in grass fertilizer, an important consumer product since the postwar housing boom had created a strong market of homeowners eager to perfect their lawns. In the mid-1950s Monsanto began to produce urethane foam, which was flexible and easy to use; it later became crucial in making automobile interiors. In 1955 Monsanto acquired Lion Oil, increasing its assets by more than 50 percent. Stockholders during this time numbered 43,000.

Having finally outgrown its headquarters in downtown St. Louis, Monsanto moved to the suburban community of Creve Coeur in 1957. Three years later Edgar Queeny turned over the chair of Monsanto to Charles Thomas, one of the founders of the research and development laboratory so important to Monsanto. Charlie Sommer, who had joined the company in 1929, became president. Under their combined leadership Monsanto saw several important developments, including the establishment of the Agricultural Chemicals division, created to consolidate Monsanto's diverse agrichemical product lines. Monsanto's European expansion continued, with Brussels becoming the permanent overseas headquarters in 1962.

In 1964 Monsanto changed its name to Monsanto Company in acknowledgment of its diverse product line. The company consisted of eight divisions, including petroleum, fibers, building materials, and packaging.

According to Monsanto historian Dan Forrestal, "Leadership during the 1960s and early 1970s came principally from ... executives whose Monsanto roots ran deep." In 1964 Edward O'Neal became chairperson. O'Neal, who had come to Monsanto in 1935 with the acquisition of the Swann Corporation, was the first chair in company history who had not first held the post of president. Another company leader was Edward J. Bock, who had joined Monsanto in 1941 as an engineer. He rose through the ranks to become a member of the board of directors in 1965 and president in 1968. Edgar Queeny, who left no heirs, died in 1968.

Although Bock had a reputation for being a committed company executive, several factors contributed to his volatile term as president. High overhead costs and a sluggish national economy led to a dramatic 29 percent decrease in earnings in 1969. Sales were up the following year, but Bock's implementation of the 1971 reorganization caused a significant amount of friction among members of the board and senior management. In spite of the fact that this move, in which Monsanto separated the management of raw materials from the company's subsidiaries, was widely praised by security analysts, Bock resigned from the presidency in February 1972. After a nine-month search, John W. Hanley, a former executive with Procter and Gamble, was chosen as president. Hanley also took over as chairperson in 1975.

Under Hanley, Monsanto more than doubled its sales and earnings between 1972 and 1983. Toward the end of his tenure, Hanley put into effect a promise he had made to himself and to Monsanto when he accepted the position of president, namely, that his successor would be chosen from Monsanto's ranks. Hanley and his staff chose approximately 20 young executives as potential company leaders and began preparing them for the head position at Monsanto. Among them was Richard J. Mahoney. When Hanley joined Monsanto, Mahoney was a young sales director in agricultural products. In 1983 Hanley turned the leadership of the company over to Mahoney. Wall Street immediately approved this decision with an increase in Monsanto's share prices.

Legal Challenges in the 1970s--80s

During this time, public concern over the environment began to escalate. Ralph Nader's activities and Rachel Carson's book Silent Spring had been influential in increasing the U.S. public's awareness of activities within the chemical industry in the 1960s, and Monsanto responded in several ways to the pressure. In 1964 the company introduced biodegradable detergents, and in 1976, Monsanto announced plans to phase out production of polychlorinated biphenyl (PCB).

In 1979 a lawsuit was filed against Monsanto and other manufacturers of agent orange, a defoliant used during the Vietnam War. Agent orange contained a highly toxic chemical known as dioxin, and the suit claimed that hundreds of veterans had suffered permanent damage because of the chemical. In 1984 Monsanto and seven other manufacturers agreed to a $180 million settlement just before the trial began. With the announcement of a settlement Monsanto's share price, depressed because of the uncertainty over the outcome of the trial, rose substantially.

Also in 1984, Monsanto lost a $10 million antitrust suit to Spray-Rite, a former distributor of Monsanto agricultural herbicides. The U.S. Supreme Court upheld the suit and award, finding that Monsanto had acted to fix retail prices with other herbicide manufacturers.

In August 1985, Monsanto purchased G. D. Searle, the "NutraSweet" firm. NutraSweet, an artificial sweetener, had generated $700 million in sales that year, and Searle could offer Monsanto an experienced marketing and a sales staff as well as real profit potential. Since the late 1970s the company had sold nearly 60 low margin businesses and, with two important agriculture product patents expiring in 1988, a major new cash source was more than welcome. What Monsanto didn't count on, however, was the controversy surrounding Searle's intrauterine birth control device called the Copper-7.

Soon after the acquisition, disclosures about hundreds of lawsuits over Searle's IUD surfaced and turned Monsanto's takeover into a public relations disaster. The disclosures, which inevitably led to comparisons with those about A. H. Robins, the Dalkan Shield manufacturer that eventually declared Chapter 11 bankruptcy, raised questions as to how carefully Monsanto management had considered the acquisition. In early 1986 Searle discontinued IUD sales in the United States. By 1988 Monsanto's new subsidiary faced an estimated 500 lawsuits against the Copper-7 IUD. As the parent company, Monsanto was well insulated from its subsidiary's liabilities by the legal "corporate veil."

Toward the end of the 1980s, Monsanto faced continued challenges from a variety of sources, including government and public concern over hazardous wastes, fuel and feedstock costs, and import competition. At the end of the 99th Congress, then President Ronald Reagan signed a $8.5 billion, five-year cleanup superfund reauthorization act. Built into the financing was a surcharge on the chemical industry created through the tax reform bill. Biotechnology regulations were just being formulated, and Monsanto, which already had types of genetically engineered bacteria ready for testing, was poised to be an active participant in that field.

In keeping with its strategy to become a leader in the health field, Monsanto and the Washington University Medical School entered into a five-year research contract in 1984. Two-thirds of the research was to be directed into areas with obviously commercial applications, while one-third of the research was to be devoted to theoretical work. One particularly promising discovery involved the application of the bovine growth factor, a way to greatly increase milk production.

In the burgeoning low-calorie sweetener market, challengers to NutraSweet were putting pressure on Monsanto. Pfizer Inc., a pharmaceutical company, was preparing to market its product, called alitame, which it claimed was far sweeter than NutraSweet and better suited for baking.

In an interview with Business Week, senior vice-president for research and development Howard Schneiderman commented, "To maintain our markets--and not become another steel industry--we must spend on research and development." Monsanto, which has committed eight percent of its operating budget to research and development, far above the industry average, hoped to emerge in the 1990s as one of the leaders in the fields of biotechnology and pharmaceuticals that are only now emerging from their nascent stage.

By the end of the 1980s, Monsanto had restructured itself and become a producer of specialty chemicals, with a focus on biotechnology products. Monsanto enjoyed consecutive record years in 1988 and 1989--sales were $8.3 billion and $8.7 billion, respectively. In 1988 the Food and Drug Administration approved Cytotec, a drug that prevents gastric ulcers in high-risk cases. Sales of Cytotec in the United States reached $39 million in 1989.

The Monsanto Chemical Co. unit prospered with products like Saflex, a type of nylon carpet fiber. The NutraSweet Company held its own in 1989, contributing $180 million in earnings, with growth in the carbonated beverage segment. Almost 500 new products containing NutraSweet were introduced in 1989, for a total of 3,000 products.

Monsanto continued to invest heavily in research and development, with seven percent of sales allotted for this area. The investment began to pay off when the research and development department developed an all-natural fat substitute called Simplesse. The FDA declared in early 1990 that the product was "generally recognized as safe" for use in frozen desserts. That year, the NutraSweet Company introduced Simple Pleasures frozen dairy dessert. Monsanto hoped to see Simplesse used eventually in salad dressings, yogurt, and mayonnaise.

Despite these successes, Monsanto remained frustrated by delays in obtaining FDA approval for bovine somatotropin (BST), a chemical used to increase milk production in cows. Opponents to BST said it would upset the balance of supply and demand for milk, but Monsanto countered that BST would provide high-quality food supplies to consumers worldwide.

The final year of the 1980s also marked Monsanto's listing for the first time on the Tokyo Stock Exchange. Monsanto officials expected the listing to improve opportunities for licensing and joint venture agreements.

Early 1990s Transitional Period

Monsanto had expected to celebrate 1990 as its fifth consecutive year of increased earnings, but numerous factors--the increased price of oil due to the Persian Gulf War, a recession in key industries in the United States, and droughts in California and Europe&mdash′evented the company from achieving this goal. Net income was $546 million, a dramatic drop from the record of $679 the previous year. Nonetheless, subsidiary Searle, which had experienced considerable public relations scandals and headaches in the 1980s, had a record financial year in 1990. The subsidiary had established itself in the global pharmaceutical market and was beginning to emerge as an industry leader. The Monsanto Chemical Co., meanwhile, was a $4 billion business that made up the largest percentage of Monsanto's sales.

Monsanto continued to work at upholding "The Monsanto Pledge," a 1988 declaration to reduce emissions of toxic substances. By its own estimates, the company devoted $285 million annually to environmental expenditures. Furthermore, Monsanto and the Environmental Protection Agency agreed to a cleanup program at the company's detergent and phosphate plant in Richmond County, Georgia.

The company restructured during the early 1990s to help cut losses during a difficult economic time. Net income in 1991 was only $296 million, $250 million less than the previous year. Despite this showing, 1991 was a good year for some of Monsanto's newest products. Bovine somatotropin finally gained FDA approval and was sold in Mexico and Brazil, and Monsanto received the go-ahead to use the fat substitute, Simplesse, in a full range of food products, including yogurt, cheese and cheese spreads, and other low-fat spreads. In addition, the herbicide Dimension was approved in 1991, and scientists at Monsanto tested genetically improved plants in field trials.

Furthermore, Monsanto expanded internationally, opening an office in Shanghai and a plant in Beijing, China. The company also hoped to expand in Thailand, and entered into a joint venture in Japan with Mitsubishi Chemical Co.

Monsanto's sales in 1992 hit $7.8 million. However, as net income dropped 130 percent from 1991 due to several one-time aftertax charges, the company prepared itself for challenging times. The patent on NutraSweet brand sweetener expired in 1992, and in preparation for increased competition, Monsanto launched new products, such as the NutraSweet Spoonful, which came in tabletop serving jars, like sugar. The company also devoted ongoing research and development to Sweetener 2000, a high-intensity product.

In 1992, Monsanto denied that it planned to sell G. D. Searle and Co., pointing out that Searle was a profitable subsidiary that launched many new products. However, to decrease losses, Monsanto did sell Fisher Controls International Inc., a subsidiary that manufactures process control equipment. Profits from the sale were used to buy the Ortho lawn-and-garden business from Chevron Chemical Co.

Monsanto Reinvents Itself in the 1990s

Monsanto expected to see growth in its agricultural, chemical, and biotechnological divisions. In 1993, Monsanto and NTGargiulo joined forces to produce a genetically altered tomato. As the decade progressed, biotechnology played an increasingly important role, eventually emerging as the focal point of the company's operations. The foray into biotechnology, begun in the mid-1980s with a $150-million investment in a genetic engineering lab in Chesterfield, Missouri, had been faithfully supported by further investments in the ensuing years. Monsanto's efforts finally yielded tangible success in 1993, when BST was approved for commercial sale after a frustratingly slow FDA approval process. In the coming years, the development of further biotech products moved to the forefront of Monsanto's activities, ushering in a period of profound change. Fittingly, the sweeping, strategic alterations to the company's focus were preceded by a change in leadership, making the last decade of the 20th century one of the most dynamic eras in Monsanto's history.

Toward the end of 1994, Mahoney announced his retirement, effective the following year in March 1995. As part of the same announcement, Mahoney revealed that Robert B. Shapiro, Monsanto's president and chief operating officer, would be elected by Monsanto's board of directors as his successor. Shapiro, who had joined Searle in 1979 before being named executive vice-president of Monsanto in 1990, did not waver from exerting his influence over the company he now found himself presiding over. At the time of his promotion, Shapiro inherited a company that ranked as the largest domestic acrylic manufacturer in the world, generating $3 billion of its $7.9 billion in total revenues from chemical-related sales. This dominant side of the company's business, representing the foundation upon which it had been built, was eliminated under Shapiro's stewardship, replaced by a resolute commitment to biotech.

Between the mid-1980s and the mid-1990s, Monsanto had spent approximately $1 billion on developing its biotech business. Although biotech was regarded as a commercially unproven market by some industry analysts, Shapiro pressed forward with the research and development of biotech products, and by the beginning of 1996 he was ready to launch the company's first biotech product line. Monsanto began marketing herbicide-tolerant soybeans, genetically engineered to resist Roundup, and insect-resistant cotton, beginning with two million acres of both crops. By the fall of 1996, there were early indications that the first harvests of genetically engineered crops were performing better than expected. News of the encouraging results prompted Shapiro to make a startling announcement in October 1996, when he revealed that the company was considering divesting its chemical business as part of a major reorganization into a life-sciences company.

By the end of 1996, when Shapiro announced he would spin-off the chemical operations as a separate company, Monsanto faced a future without its core business, a $3 billion contributor to the company's annual revenue volume. Without the chemical operations, Monsanto would be reduced to an approximately $5-billion company deriving half its sales from agricultural products and the rest from pharmaceuticals and food ingredients, but Shapiro did not intend to leave it as such. He foresaw an aggressive push into biotech products, a move that industry pundits generally perceived as astute. "It would be a gamble if they didn't do it," commented one analyst in reference to the proposed divestiture. "Monsanto is trying to transform itself into a high-growth agricultural and life sciences company. Low-growth cyclical chemical operations do not fit that bill." Spurring Shapiro toward this sweeping reinvention of Monsanto were enticing forecasts for the market growth of plant biotech products. A $450 million business in 1995, the market for plant biotech products was expected to reach $2 billion by 2000 and $6 billion by 2005. Shapiro wanted to dominate this fast-growing market as it matured by shaping Monsanto into what he described as the main provider of "agricultural biotechnology."

As preparations were underway for the spin-off of Monsanto's chemical operations into a new, publicly owned company named Solutia Inc., Shapiro was busy filling the void created by the departure of the company's core business. A flurry of acquisitions completed between 1995 and 1997 greatly increased Monsanto's presence in life sciences, quickly compensating for the revenue lost from the spin-off of Solutia. Among the largest acquisitions were Calgene, Inc., a leader in plant biotech, which was acquired in a two-part transaction in 1995 and 1997, and a 40 percent interest in Dekalb Genetics Corp., the second-largest seed-corn company in the United States. In 1998, the company acquired the rest of DeKalb, paying $2.3 billion for the Illinois-based company.

By the end of the 1990s, Monsanto bore only partial resemblance to the company that entered the decade. The acquisition campaign that added dozens of biotechnology companies to its portfolio had created a new, dominant force in the promising life sciences field, placing Monsanto in a position to reap massive rewards in the years ahead. For example, a rootworm-resistant strain under development had the potential to save $1 billion worth of damages to corn crops per year. The company's pharmaceutical business also faced a promising future, highlighted by the introduction of a new arthritis medication named Celebrex in 1999. During its first year, Celebrex registered a record number of prescriptions. As Monsanto entered the 21st century, however, there were two uncertainties that loomed as potentially serious obstacles blocking its future success. The acquisition campaign of the mid- and late-1990s had greatly increased the company's debt, forcing Monsanto to desperately search for cash. Secondly, there was growing opposition to genetically altered crops at the decade's conclusion, prompting the United Kingdom to ban the yields from such crops for a year. A great part of the company's future success depended on the resolution of these two issues.

Principal Subsidiaries: Calgene Inc.; Asgrow Seed Co.; DEKALB Genetics Corp.; DEKALB Swine Breeders Inc.; Nutrasweet Co.; Monsanto Agricultural Co.; G. D. Searle & Co.

Further Reading:

• Crisafulli, Patricia, "Monsanto, EPA Resolve Superfund Cleanup," Journal of Commerce, April 12, 1991, p. 13A.
• Desloge, Rick, "Is a Divided Monsanto a Target for Purchase?," St. Louis Business Journal, December 30, 1996, p. 3.
• Donlon, J. P., "After Restructuring, What?" Chief Executive (U.S.), March-April, 1988, p. 50.
• Ellis, James E., "Monsanto and the Copper-7: A 'Corporate Veil' Begins to Fray," Business Week, September 26, 1988, p. 50.
• Forrestal, Dan J., Faith, Hope, and $5,000: The Story of Monsanto: The Trials and Triumphs of the First 75 Years, New York: Simon and Schuster, 1977.
• "The Green Gene Giant," The Economist, April 26, 1997, p. 66.
• Henkoff, Ronald, "Monsanto: Learning from Its Mistakes," Fortune, January 27, 1992, p. 81.
• Jaffe, Thomas, "How Do You Top This?," Forbes, June 1, 1998.
• Kiesche, Elizabeth S., "Monsanto Cultivates Lawn and Garden Line with Ortho Buy," Chemical Week, January 20, 1993, p. 7.
• Steyer, Robert, "Going It Alone," Knight-Ridder/Tribune Business News, October 19, 1998.
• Stringer, Judy, "Monsanto Poised to Reap BioTech Harvest," Chemical Week, November 6, 1996, p. 51.

Source: International Directory of Company Histories, Vol. 29. St. James Press, 1999.

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